The leverage position of the firm indicates the amount of other people's money that is being used in attempting to generate profits. Typically, the financial analyst is most concerned with long-term debts, since these commit the firm to pay interest over the long-run and eventually repay the sum borrowed. Since the claims of creditors must be satisfied prior to the distribution of earnings to shareholders, present and prospective shareholders pay close attention to degree of indebtedness and ability to firm regarding indebtedness and ability to serve debts, since the more indebtedness present, the higher the probability that the firm will be unable to satisfy the claims of all of its creditors. Management obviously must be concerned with indebtedness, since it recognizes the attention paid to it by other parties and since it certainly does not wish to see the firm become insolvent.

KEYWORDS: Leverage Position, Long-term Debts, Shareholders, Debt-equity Ratio.