Financial corporations debt to equity ratio

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Firms can finance operations through debt or equity. The debt-to-equity ratio is a measure of a firm’s financial leverage, or degree to which companies finance their activities out of equity. It is calculated by dividing the debt of financial corporations by the total amount of shares and other equity liabilities of the same sector. Debt is defined as a specific subset of liabilities. All debt instruments are liabilities, but some liabilities such as shares, equity and financial derivatives are not debt. Debt is usually obtained as the sum of the following liability categories: currency and deposits, debt securities), loans, Insurance, pension and standardised guarantee programmes and other accounts payable. On the denominator side, shares and other equity correspond to a part of the own resources of financial corporations which are, by convention, reported as liabilities of the companies. Own funds, which are calculated as total net worth plus shares and other equity, would have been preferable as a denominator to avoid stock market fluctuations. However, due to the non-availability of data on non-financial assets for many OECD countries, the total net worth could not be calculated. In this respect, shares and other equity, which form a part of own funds, are selected as a denominator. The financial corporation sector (S12 in the System of National Accounts terminology) includes all private and public entities engaged in financial activities, such as monetary institutions (including the central bank), financial intermediaries, insurance companies and pension funds. If the ratio is 2.5 it means that the outstanding debt is 2.5 larger than their equity. Data are under 2008 System of National Accounts (SNA 2008) for all countries except for Chile, Japan and Turkey (SNA 1993).

Financial corporations debt to equity ratio

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Financial corporations debt to equity ratio

Firms can finance operations through debt or equity. The debt-to-equity ratio is a measure of a firm’s financial leverage, or degree to which companies finance their activities out of equity. It is calculated by dividing the debt of financial corporations by the total amount of shares and other equity liabilities of the same sector. Debt is defined as a specific subset of liabilities. All debt instruments are liabilities, but some liabilities such as shares, equity and financial derivatives are not debt. Debt is usually obtained as the sum of the following liability categories: currency and deposits, debt securities), loans, Insurance, pension and standardised guarantee programmes and other accounts payable. On the denominator side, shares and other equity correspond to a part of the own resources of financial corporations which are, by convention, reported as liabilities of the companies. Own funds, which are calculated as total net worth plus shares and other equity, would have been preferable as a denominator to avoid stock market fluctuations. However, due to the non-availability of data on non-financial assets for many OECD countries, the total net worth could not be calculated. In this respect, shares and other equity, which form a part of own funds, are selected as a denominator. The financial corporation sector (S12 in the System of National Accounts terminology) includes all private and public entities engaged in financial activities, such as monetary institutions (including the central bank), financial intermediaries, insurance companies and pension funds. If the ratio is 2.5 it means that the outstanding debt is 2.5 larger than their equity. Data are under 2008 System of National Accounts (SNA 2008) for all countries except for Chile, Japan and Turkey (SNA 1993).

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