What is a good debt to equity ratio for utilities? (2024)

What is a good debt to equity ratio for utilities?

Typical capital structures for regulated utilities in the U.S. are in the range of 40% debt to 60% equity and 60% debt to 40% equity.

What is a good debt-to-equity ratio for utility companies?

D/E Considerations for the Utilities Sector

Therefore, D/E ratios should be considered in comparison to similar companies within the same industry. Generally, ratios of 0.5 and below are considered excellent, while ratios above 2.0 are viewed more unfavorably.

What is the debt-to-equity ratio for essential utilities?

The debt/equity ratio can be defined as a measure of a company's financial leverage calculated by dividing its long-term debt by stockholders' equity. Essential Utilities debt/equity for the three months ending September 30, 2023 was 1.16.

What are the key financial ratios for utility companies?

The four key ratios for analysts and investors to use when analyzing the energy sector include—debt-to-EBITDA, interest coverage ratio, debt-to-capital, and debt-to-equity. Debt can increase shareholder returns, as the cost of debt is lower than the cost of equity.

What is an acceptable level for debt-to-equity ratio?

The optimal D/E ratio varies by industry, but it should not be above a level of 2.0. A D/E ratio of 2 indicates the company derives two-thirds of its capital financing from debt and one-third from shareholder equity.

What is the average debt-to-equity ratio in the energy industry?

How do you evaluate a utility company?

The most common way of valuing US utilities stocks uses price-to-earnings (P/E) ratios: a company's market value compared to next year's projected profit. This method is straightforward; the “earnings” part can be forecast to a high degree of accuracy thanks to the regulated return on rate base we discussed earlier.

Are utilities included in debt-to-income ratio?

Many of your monthly bills aren't included in your debt-to-income ratio because they're not debts. These typically include common household expenses such as: Utilities (garbage, electricity, cell phone/landline, gas, water) Cable and internet.

What does a debt-to-equity ratio of 1.75 mean?

A debt to equity ratio of 1.75 means there is: (a) $1.75 of debt for each $1.00 of equity.

What is ratio analysis utility?

It helps in determining how efficiently a firm or an organisation is operating. It provides significant information to users of accounting information regarding the performance of the business. It helps in comparison of two or more firms. It helps in determining both liquidity and long term solvency of the firm.

What are the 5 most common financial ratios?

Ratios include the working capital ratio, the quick ratio, earnings per share (EPS), price-earnings (P/E), debt-to-equity, and return on equity (ROE). Most ratios are best used in combination with others rather than singly to accomplish a comprehensive picture of a company's financial health.

What are the top three financial ratios?

5 Essential Financial Ratios for Every Business. The common financial ratios every business should track are 1) liquidity ratios 2) leverage ratios 3)efficiency ratio 4) profitability ratios and 5) market value ratios.

What is an unhealthy debt-to-equity ratio?

Generally, a good debt-to-equity ratio is anything lower than 1.0. A ratio of 2.0 or higher is usually considered risky. If a debt-to-equity ratio is negative, it means that the company has more liabilities than assets—this company would be considered extremely risky.

Is 4.5 a good debt-to-equity ratio?

The maximum acceptable debt-to-equity ratio for more companies is between 1.5-2 or less. Large companies having a value higher than 2 of the debt-to-equity ratio is acceptable.

What is too high for debt ratio?

Key takeaways

Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.

What is Duke Energy debt-to-equity ratio?

Debt Level: DUK's net debt to equity ratio (156.7%) is considered high. Interest Coverage: DUK's interest payments on its debt are not well covered by EBIT (2.4x coverage).

Why do utilities have a lot of debt?

Utilities require a significant amount of expensive infrastructure and consequently carry large amounts of debt on their balance sheets. These debt loads make utilities hypersensitive to changes in the market interest rate.

What are the key performance indicators for utilities?

Key performance indicators for utilities' transmission and distribution functions include: Grid reliability - Length and frequency of power outages as a percentage of total operating time. Lower is more reliable. Power quality - Frequency and duration of voltage sags, spikes, and harmonic distortion incidents.

What percent of portfolio should be in utilities?

Good for portfolios.

"Although every investor has different growth, income and risk profiles, the average investor can be comfortable holding a 10 percent to 15 percent position."

What are four C's of credit?

Character, capital, capacity, and collateral – purpose isn't tied entirely to any one of the four Cs of credit worthiness. If your business is lacking in one of the Cs, it doesn't mean it has a weak purpose, and vice versa.

How much house can you afford if you make 60000 a year?

If you earn $60K a year, that means you can afford to spend around $180,000 on a house, maybe a bit more if you have little or no other debts. However, depending on where you want to live, interest rates, and how much debt you're carrying, that figure could change significantly.

Can I get a mortgage with 55% DTI?

However, some may consider a higher DTI of up to 50% on a case-by-case basis. For FHA and VA loans, the DTI ratio limits are generally higher than those for conventional mortgages. For example, lenders may allow a DTI ratio of up to 55% for an FHA and VA mortgage.

Is 7 a good debt-to-equity ratio?

What is a bad debt-to-equity ratio? When the ratio is more around 5, 6 or 7, that's a much higher level of debt, and the bank will pay attention to that. “It doesn't mean the company has a problem, but you have to look at why their debt load is so high,” says Lemieux.

Is a debt ratio of 75% bad?

Whether it be “good” or “bad,” a debt is problematic when you are no longer able to pay it back on time. By calculating the ratio between your income and your debts, you get your “debt ratio.” This is something the banks are very interested in. A debt ratio below 30% is excellent. Above 40% is critical.

What is a 3 to 1 debt-to-equity ratio?

Example of Debt to Equity Ratio

A corporation with $1,200,000 of liabilities and $2,000,000 of stockholders' equity will have a debt to equity ratio of 0.6:1. A corporation with total liabilities of $1,200,000 and stockholders' equity of $400,000 will have a debt to equity ratio of 3:1.