1. What is Debt to Equity Ratio?

The Debt to Equity Ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. It measures a company's financial leverage and indicates how much debt a company is using to finance its assets relative to the value of shareholders' equity.

2. How Does the Calculator Work?

The calculator uses the Debt to Equity Ratio formula:

Where:

• \( \text{Total Debt} \) — All interest-bearing liabilities (short-term and long-term debt)
• \( \text{Total Equity} \) — Shareholders' equity (total assets minus total liabilities)

Explanation: The ratio shows how much debt a company has for every dollar of equity. A higher ratio means more debt financing relative to equity financing.

3. Importance of Debt to Equity Ratio

Details: This ratio is crucial for assessing a company's financial health. It helps investors and creditors understand the company's capital structure and risk profile. A high ratio may indicate higher financial risk, while a low ratio may suggest conservative financing.

4. Using the Calculator

Tips: Enter total debt and total equity in dollars. Both values must be positive numbers (equity must be greater than zero). The result is a unitless ratio that shows the proportion of debt to equity.

5. Frequently Asked Questions (FAQ)

Q1: What is a good debt to equity ratio?
A: This varies by industry, but generally a ratio below 2.0 is considered acceptable, while above 2.0 may be seen as risky. However, capital-intensive industries often have higher ratios.

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

Q3: Can debt to equity ratio be negative?
A: Yes, if shareholders' equity is negative (when liabilities exceed assets), the ratio will be negative, indicating serious financial distress.

Q4: Why do investors care about this ratio?
A: It helps assess financial risk - companies with high ratios may struggle to meet debt obligations during downturns, while those with low ratios may be missing growth opportunities.

Q5: How often should this ratio be calculated?
A: It should be monitored regularly (quarterly or annually) as part of financial statement analysis to track changes in capital structure over time.