The historical, present and projected gearing and leverage levels are analyzed. Sensitivity analysis is also carried out by varying critical assumptions for determining the cushion available for meeting future obligations in the event of adverse changes in business conditions.

The specific issues include :

• Gearing (debt/equity) measures: historic, present and projected.
• Leverage (total liabilities/equity) measures: historic, present and projected.
• Sensitivity analysis on projected levels.
• Seasonal variations in measures: core debt levels.
• Coverage measures on interest & leasing costs.
• Necessary adjustments to measure for off-balance sheet items: leased plant/buildings, non-consolidated subsidiaries, guaranteed associates or joint ventures.
• Appropriateness of capital structure for the business: over-reliance on short term funding, sensitivity to interest rate changes.
• Nature of underlying assets: ability to realize without loss, attraction to buyers in a forced sale, valuation methods and potential for moderation of gearing/leverage measures.
• Debt structure : type, maturity, currency, service schedule, covenants, security, default clauses.