What Is the Debt-to-Equity (D/E) Ratio?

Business & Management
#1

The debt-to-equity (D/E) ratio is determined by dividing a company’s total liabilities by its shareholder equity to determine its financial leverage. In corporate finance, the D/E ratio is a crucial statistic. It’s a measure of how much a firm relies on debt to support its operations rather than entirely owned capital. In the case of a corporate downturn, it represents the capacity of shareholder equity to satisfy all existing obligations. A specific form of gearing ratio is the debt-to-equity ratio.
Higher leverage ratios usually imply a firm or stock that poses a greater risk to investors. Because the risks associated with long-term liabilities differ from those connected with short-term debt and payables, investors frequently alter the D/E ratio to focus on long-term debt.
​Debt/Equity=Total Liabilities​​Total /Shareholders’ Equity

#2

The debt-to-equity (D/E) ratio is calculated by dividing a company’s total liabilities by its shareholder equity. These numbers are available on the balance sheet of a company’s financial statements.\

The ratio is used to evaluate a company’s financial leverage. The D/E ratio is an important metric used in corporate finance. It is a measure of the degree to which a company is financing its operations through debt versus wholly-owned funds. More specifically, it reflects the ability of shareholder equity to cover all outstanding debts in the event of a business downturn.

D/ E of 1 or less should be considered as the benchmark, and then depending upon the industry, track record of the company, capital required, project details, should a decision be taken.