The Ideal Debt Ratio of an Agricultural Enterprise

Abstract

The objective of the contribution is to propose a new methodology for determining the optimal credit absorption capacity of an enterprise while maintaining the positive function of financial leverage, i.e., the maximum possible loan that would continuously bring benefit to the enterprise. The proposed methodology determines the credit absorption capacity of an enterprise according to EVA Equity and EVA Entity. Based on a theoretical analysis of both indicators, the possibility of applying the proposed methodology for this purpose was proved. To verify the theoretical assumptions, the optimal credit absorption capacity of enterprises operating in the agricultural sector of the CR was determined. The data used for the purposes of the contribution were obtained from the Albertina database for the years 2012–2018. The credit absorption capacity of the monitored enterprises ranged from CZK 6.88 million to CZK 9.6 million. The article also determines the optimal ratio of equity to debt capital.