Short result:
Debt to Equity Ratio Calculator
Result
Date publish: 19.09.2024
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Author: Calcwizard
Analysis of Debt to Equity Ratio
The Debt to Equity Ratio (D/E) is a financial metric that gives the proportion of a company’s assets financed by shareholder equity and obligations on those assets. A company is more leveraged if it has a higher ratio, which could mean higher risks; a lower ratio means less risk with more potential loss for investors.
Why is the Debt to Equity Ratio Important?
- Assists the prospective investor in making an assessment of financial risk.
- Indicates how much debt is being used to support a company’s operations.
How to Calculate the Debt to Equity Ratio
The formula for calculating the Debt to Equity Ratio is:
Debt to Equity Ratio = Total Debt / Total Equity
Example Calculations
| Company | Total Debt | Total Equity | Debt to Equity Ratio |
|---|---|---|---|
| Company A | $200,000 | $300,000 | 0.67 |
| Company B | $500,000 | $500,000 | 1.00 |
| Company C | $300,000 | $700,000 | 0.43 |
| Company D | $1,000,000 | $2,000,000 | 0.50 |
Examine How The Ratios Differ Between Industries
From the table we can ascertain something about the ratio of debt to equity principals at various companies. Even more illustrative than our discussion up to now is:
- Company A has a ratio of 0.67. This means that for every dollar of equity there is 67 cents in debt.
- Company B’s ratio of 1.00 tells us that it has exactly as much debt as equity.
- Company C is less dependent upon debt than Company A; that is the information given by a ratio of 0.43.
- Company D has a ratio of 0.50, indicating that they are financing with both debt and equity.
Such ratio calculations can stand in incredibly useful stead as you make decisions about investments and financial strategies.
