Playing with debt

We have published several stories in the past about the dangerous levels of debt of the Indian listed companies and its various aspects. This time we have analysed a very simple approach to get the idea of the debt situation of a company: the debt-to-equity ratio. The debt-to-equity ratio of the Indian listed companies is currently at a dangerously high level. We have found that around 403 companies have debt-to-equity ratios of more than three, which are very high as compared to the normal figures. These 403 companies account for almost 16 per cent of the companies listed on the Bombay Stock Exchange, excluding around 500 banking and finance companies. The number of companies with a debt-to-equity of more than two and one are 567 and 1,017, respectively. The debt-to-equity ratios are high, but to check vulnerability we looked at the return on capital employed of the 1,017 companies having more debt than equity. To pay off the liabilities, the companies' RoCE should be at least more than the cost of borrowings. Assuming the cost of borrowing at 11 per cent, to our surprise, we found that there are only 343 companies which have RoCE of more than 11