Balancing debt and equity in Sharma Medical.
Dr. Sharma's $280,000 student loan burden impacts her ability to secure additional financing for expansion, such as purchasing new equipment or hiring more staff. While her personal income is high ($350,000 AGI), lenders are hesitant due to the high debt-to-income ratio when considering the practice's financials. She needs a clear understanding of her practice's capital structure to strategically address this issue and unlock growth opportunities.
Using the Debt-to-Capital Ratio Calculator, Dr. Sharma can assess her medical practice's financial leverage. By inputting her practice's total debt (including a portion of her student loans allocated to the business) and total capital, she can determine the ratio. A higher ratio indicates greater risk, while a lower ratio suggests a more conservative approach. If the initial calculation reveals a high ratio of, say, 0.70 (70% debt to capital), Dr. Sharma can then explore strategies to reduce debt or increase equity to improve her financial standing, possibly by reinvesting profits versus taking a larger salary.
The Debt-to-Capital Ratio is calculated by dividing total debt by the sum of total debt and total equity. Inputs include all short-term and long-term liabilities and equity from the practice's balance sheet.
$50,000 potential increase in loan approval for expansion; 10% improvement in practice valuation.
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