1. What is Debt to Equity Ratio?

The Debt to Equity Ratio is a financial ratio that indicates the relative proportion of shareholders' equity and debt used to finance a company's assets. It measures a company's financial leverage and risk.

2. How Does the Calculator Work?

The calculator uses the Debt to Equity formula:

Where:

• \( \text{Total Debt} \) — All of the company's current and long-term liabilities
• \( \text{Total Equity} \) — The shareholders' equity in the company

Explanation: The ratio shows how much debt a company is using to finance its assets relative to the value of shareholders' equity.

3. Importance of Debt to Equity Ratio

Details: This ratio is important for investors and creditors to assess a company's financial health. A high ratio indicates higher financial risk, while a low ratio may suggest conservative financing.

4. Using the Calculator

Tips: Enter total debt and total equity in the same currency. Both values must be positive, and equity must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good debt to equity ratio?
A: This varies by industry, but generally a ratio below 1.0 is considered conservative, while ratios above 2.0 are considered aggressive.

Q2: How does this ratio differ from debt ratio?
A: Debt ratio compares total debt to total assets, while debt to equity compares debt to shareholders' equity.

Q3: Can the ratio be negative?
A: No, since both debt and equity should be positive numbers (with equity > 0).

Q4: Why do industries have different standard ratios?
A: Capital-intensive industries (like utilities) typically have higher acceptable ratios than service-based companies.

Q5: How often should this ratio be calculated?
A: It should be monitored quarterly along with other financial metrics to track financial health over time.