Dykstra: Watch Companies' Debt

First baseman Ryan Howard and the Phillies made it official Sunday: he accepted Philadelphia's offer of $54 million over three years -- allowing him to stay with the team he's played for since 2004.

Howard's known for his power and driving in runs. He had 48 home runs and 146 RBIs in 610 at-bats last season. His lifetime batting average is .279.

My own record for Nails on the Numbers, my deep-in-the-money options call strategy, stands at 95-1, and I'm going to push it out much further this year.

Companies can clean their slates in a recession by reducing the debt they carry. If they don't, a debt load can become an albatross around the neck, as corporations see cash flow dry up to service the debt.

A way to monitor a stock's ability to service its debt is the interest coverage ratio, or earnings before interest and taxes, divided by the interest expense over a given period of time. These figures come from the income statement, and are just one way of monitoring a company's debt burden.

A healthy coverage ratio should at least be 1.0, but a ratio above 1.5 is ideal. It shows the company still has earnings left over after paying interest charges.

Many industries don't require vast sums of capital to generate profit. Software companies come to mind. Microsoft(MSFT Quote) has traditionally carried no debt. Even Oracle(ORCL Quote), which has acquired over three dozen companies in the past five years, had cash flow to keep its interest coverage ratio at a shiny 12.6 as the end of November.