Leverage ratio for calculating Margins

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allalongthewatc

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Hello All,
If leverage ratio = 2.5, then investment in equities = 40% on 100% position. In other words, 60% will be borrowed debt. What would happen to this leverage ratio if investment in equities were 0? Will leverage ratio be infinity? :) Mathematically, that may sound a bit odd. Just curious.
I would appreciate your thoughts.
Thanks
 
If equity is 0 and there was an investment, it’s apprently 100% debt.
 
Yes, if the investment went to zero, the leverage ratio would be infinite.
That’s why there’s a maintenance margin.
 
Ernest Seow wrote:Hmm, how can a firm be shareholders-less? Who own the company then?
Click to expand...
He’s asking about buying stock on margin, not about a company having no shareholders.
 
S2000magician wrote:
Ernest Seow wrote:Hmm, how can a firm be shareholders-less? Who own the company then?
Click to expand...
He’s asking about buying stock on margin, not about a company having no shareholders.
Click to expand...
S2000magician — Why can’t we have a company with 100% debt? As in, I could borrow money using bonds and open my own coffee shop. Isn’t it? I would appreciate if you could comment on this.
Thanks in advance.
 
In theory you could have a corporation without any stock outstanding (the corporation buys up all outstanding shares as treasury stock), but you’d likely still have equity through retained earnings. Unless it’s a really lousy coffee shop.
In practice, I believe that it is not legal for a corporation to purchase 100% of its outstanding shares as treasury stock.
 
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