# Return On Capital Formula

Finance / July 15, 2018 / Emmalynn Leach

A low debt-to-income (DTI) ratio demonstrates a good balance between debt and income. Conversely, a high DTI can signal that an individual has too much debt for the amount of income he or she has. According to studies of mortgage loans, borrowers who have lower DTIs are more likely to successfully manage monthly debt payments, so lenders prefer to see low numbers. In general, 43% is the highest DTI a borrower can have and still get qualified for a mortgage. A debt-to-income ratio smaller than 36%, however, is preferable, with no more than 28% of that debt going towards servicing a mortgage. While the maximum DTI will vary by lender, the lower the number, the better the chances that an individual will be able to get the loan or line of credit he or she wants.

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The future value of annuity due formula is used to calculate the ending value of a series of payments or cash flows where the first payment is received immediately. The first cash flow received immediately is what distinguishes an annuity due from an ordinary annuity. An annuity due is sometimes referred to as an immediate annuity.

Equity is the value of the business left to its owners after the business has paid all liabilities. Sometimes, there are different classes of ownership units, such as common stock and preferred stock. Total equity is what is left over after you subtract the value of all the liabilities of a company from the value of all of its assets. Equity is reported on a company's balance sheet.

Think of 'cash flow' as a picture of your business checking account. If more money is coming in than is going out, you are in a "positive cash flow" situation and you have enough to pay your bills. If more cash is going out than coming in, you are in danger of being overdrawn, and you will need to find money to cover your overdrafts. This is why new businesses typically need working capital, in the form of a loan or line of credit, to cover shortages in cash flow.

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