Currently there are many people, businesses and family environments that are going through debt. But far from the bad image that this concept had years ago, it is now perceived as another means that can help you achieve your goals.
Buying something you want or paying for a service you need through a savings plan can take a long time. For that reason there are those who prefer not to wait and apply for a loan to get the necessary liquidity.
That’s when the debt is born, and to help you not lose control of your personal finances because of it, we put useful information at your fingertips in this article.
What is financial indebtedness?
Indebtedness is the set of payment obligations that a person or company has contracted with a third party, be it another company, an institution or a person.
Indebtedness indicators are financial systems that seek to assess the degree of debts incurred by natural or legal persons. With them it is possible to determine the risks of a debt and control it more efficiently.
Learn the most common financial indicators below along with their formulas to calculate them.
The formula for calculating the debt ratio is: Total Liabilities / Total Assets. The idea is that this indicator manages to reflect small results because in this way greater control over indebtedness is achieved.
Short or long term financial obligations
The idea of this indicator is to be able to disclose the percentage that financial obligations represent in relation to sales made in a given period. The formula to calculate it is: Financial obligations / Net sales and is usually used only by companies.
This indicator is used to determine how much the person or company depends on the money obtained from financial institutions or third parties. It is calculated using the formula: Total liabilities with third parties / Equity.
The borrowing capacity of a natural or legal person is the maximum amount of money that can be allowed to incur in a debt. This in order to be able to request financial products without unbalancing your personal finances.
Ideally, you should know your borrowing capacity before applying for a loan. Here we show you how to calculate it.
How to know my borrowing capacity?
The formula for knowing the borrowing capacity is:
(Monthly income – Fixed expenses) * 0.40
For example, if a person receives a monthly salary of $ 3,000.00 and has expenses of $ 1,000.00, he should allocate a maximum of $ 800.00 per month to pay debts.
Depending on the financial institution the minimum percentage of borrowing capacity may vary. If you are asked for 35% or 50%, you must change the formula and multiply by 0.35 or 0.50.
Types of indebtedness
Depending on the economic environment of a person, company or agency, the type of indebtedness is different. Here are the most common.
This type of indebtedness applies to countries and all public administration entities. Public indebtedness has to do with the capacity or need for financing that the State has in relation to its GDP.
Equity indebtedness has to do with the value of a company’s assets and how they are used to indicate the entity’s dependence on an amount credited by third parties.
Short term indebtedness
Short-term indebtedness has to do with how third-party financing is managed with own funds within a given period. If the indicators reveal that the debt ratio is very high, it will mean that the company has little financial autonomy.
Represents the weight of debt on own assets over a longer period of time.
These are the debts that a natural or legal person acquires in order to invest the liquidity obtained.
If our company’s total liabilities are equal to $ 355,000, and the total assets are $ 980,000; this would be:
355,000 / 980,000 = 0.36 x 100 * = 36%
This means that for each peso invested by shareholders in our company, third parties finance the company with 0.36 pesos. This shows that the company is not in debt, since ratios above 60% are considered negative and with 36% it could be said that there is an inefficient management of resources that has led to request external financing. Let us take as an example that the total liabilities of our company is equal to $ 2,333,000. While total assets are $ 833,000; this would be:
2,333,000 / 833,000 = 2.80 x 100 * = 280%
This means that for each peso invested by shareholders in our company, third parties finance the company with 2.80 pesos. This shows that the company is in debt. The dependence that our company has with the financial institution is much greater than the maximum recommended ratio of 60%. Compartir