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Target Leverage Ratio

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Target Leverage Ratio
The ratio of the market value of debt to the total market value of the firm that management seeks to maintain.

Target Leverage Ratio
The level of debt that a company wishes to maintain expressed as a percentage of its market value. Some companies are more comfortable with debt than others. Increased leverage increases the risk to a company, but can increase returns.


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Also, if firms seek to maintain a target leverage ratio, high leverage is likely to be associated with a desire to issue equity.
Fitch also expects that DRS will likely continue to make modest debt repayments to move closer to its target leverage ratio of 3.
Unfortunately, the theory does not provide any good model for a firm's adjustment process towards its target leverage ratio.
 
 
 
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