Earnings per share − (Capital Expenditures − Depreciation)(1 − Debt Ratio) − (Change in working capital)(1 − Debt Ratio) Can someone explain the use of the Debt Ratio here?
By assuming a target debt ratio, we eliminate the need to forecast net borrowing. So the equation is saying that Capex (minus dep) and working capital are being financed by equity. The portion financed by debt is not included, hence no need for net borrowing.
understood thanks.