Sample Essay

The Debt/ Equity ratio indicates the percentage of the debt and equity based funds that a company utilized for its assets. The debt equity ratio for Coca Cola currently stands at 0.59 (‘Coca Cola Co’, 2009) which indicates that the company employs debt financing for 59 percent of the business operations and investments. The P/E ratio indicates the price per share based on the profits generated by the company. The current P/E ratio for Coca Cola is 20.20 (‘Coca Cola Co’, 2009).

The forward P/E ratio of the company would remain the same if the company issues debt for financing as it does not consider debt, only the price per share and the earnings per share. However the debt/equity ratio for the company would be affected resulting in an increase if it uses debt financing. This is because the percentage of debt financing employed by the business would decrease, while the overall ratio of the equity based financing would remain the same providing an increasing effect for the debt/equity ratio.

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