Introduction:
The Debt Management Ratio is considered as the company’s evaluation for the debt amount in contrast to its available amount for financing the upcoming projects. It should be in our best interest that such ratios provide valuable insights and information regarding all the business units that are being supported through debt, whereas the other operations should be resting on the financing amount. It includes personal savings as well as the stocks and with this ratio, we can easily evaluate the riskiness of the company through its debt amount along with the potential for default.
Common Variations:
There are three common variations that debt management ratios offer to the world of accountancy to help companies in evaluating their consumer debt, housing debt and total debt accordingly.
1 – Consumer Debt:
It is the most simplified variation in the debt ratio which embarks on comparing non-housing debt to monthly income. A person earning $5000 in one month and paying $600 to maintain a good credit-card record. It indicates that his debt ratio is exactly %12.
2 – Housing Cost:
It is known as the ‘front-end ratio’ cost, which emphasizes over the family’s debt-to-income ratio whenever there’s an application for mortgaging a house. It puts light over the fact that people must comprehend to a solid amount of income in order to bare the housing-related expenses accordingly. Since the monthly housing rate offers interest, property tax, insurance and water tax, the lenders are highly recommended to evaluate the housing cost with the desired perception.
3 – Total Debt:
Last but not the least, lenders are given an option of evaluating the total monthly debt-to-income ratio of people who show willingness for mortgaging houses across the countries. The ‘Total Debt’ sums up the amount that should be obtained from the customers as well as receiving housing payments accordingly.