Leverage Ratios
Debt / Partners’ Capital
Leverage ratios are used to gauge the amount of debt a firm carries on the balance sheet. The Debt to Equity ratio is probably the most common metric used when evaluating the debt of a public company. The same metric can be used for MLPs, although the “equity” portion is typically referred to as “Partners’ Capital”.
Calculation
D/PC = (Short Term Liabilities + Long Term Liabilities) / Partners’ Capital
Fixed Rate / Variable Rate Debt
In addition, investors generally like to see a higher ratio of fixed interest rate debt to variable rate debt. The higher the amount of variable rate debt a firm carries, the more implicit risk it assumes (since rates can rise in the future and increase the the firm’s interest payments).
Calculation
Fixed Rate Debt Ratio = Fixed Rate Debt / Variable Rate Debt
