## Debt Ratio Regression: January 2020

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*Variables used in the regression *

- Debt
Ratio = Debt/ (Market Value of Equity + Debt): If you can get market value
of debt, use it. Else, use book value of debt.
- Payout Ratio= Dividends/ Net Income, if Net Income is positve, not available if net income is negative.
- Expected growth rate in EPS- next 5 years= You can use expected or even historical earnings growth, if you don't have an EPS growth forecast
- Effective Tax Rate = Effective tax rate in most recent year

**US Regression
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**US Regression**

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**Global Regression
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**Global Regression**

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**How do I use this regression?**

Assume that
you want to estimate the market debt ratio for a firm with the following
characteristics, using the Global regression

Payout Ratio = 40%

Effective Tax Rate= 20%

Expected growth rate in EPS = 15%

Expected
Debt Ratio = 27.65 + 22.92 (.20) - 63.62 (15 ) - 1.63 (40) = 22.04 or 22.04%

If your
predicted value is less than zero, your predicted debt ratio is zero.