This workout asks us to calculate the following leverage ratios for both periods And those ratios are total debt to EBITDA and total debt to Equity Let's have a look at the balance sheet to start with, let's see if we can find those debt and equity items So going down to the liabilities and shareholders' equity section, I'm looking at current liabilities to start with to see if there are any debt items. And I can see one: commercial paper And looking at the first one there it's 6,308 in year 2 Looking down to the non current liabilities I can also see there is some long-term debt and again in year 2 that's 28,987 No other debt items, so I can add those two together to get to my total debt I also want to see if I can find the equity figure, so scrolling down into equity I can see total shareholders' equity was 111,547 for year 2 So that's debt and equity found, we'll put them into our calculations in a second Underneath this we have an income statement Let's see if we can find EBIT and then we'll add on depreciation and amortization So in order to find EBIT, I start by finding operating profit In this case it's called operating income, for year 2 it's 52,503 I look above this to see if there are any non-recurring items or any non-core or non-controlled that need cleaning out There's nothing obvious on the face of the income statement but of course if we had footnotes I would check there as well I now need to add back depreciation and amortization I've got my EBIT of 52,503 but we need D and A So I go down to my cash flow statement and in the operating section we find depreciation and amortization For year 2 it's 7,946 Now I am a little bit worried that sometimes the D and A figure in the cash statement can have hidden impairment figures Or other items within it So I would check the figures in the footnotes (if I had them) to make sure this figure is correct So I've now got all of the figures that I need, so let's put them altogether We had commercial paper, long-term debt and we add them together to get total debt We also found equity and we found that EBIT 52,503 add on the depreciation and amortization of 7,946 to get to our EBITDA We've now got everything that we need in order to do those two leverage ratios And there are our figures Debt to EBITDA: 35,295 divided by EBITDA of 60,449 That shows me that debt is 0.6x EBITDA And looking at debt to equity: 35,295 of debt divided by 111,547 of equity That's telling me that my debt is 0.3x equity here Now I will of course have to check those figures against industry benchmarks but generally speaking those figures look pretty low Of course if available to me, I'd much rather use the market value of equity rather than the book value of equity So if this company is listed and it's available to me then I would use the market value of equity instead