1. What is Debt to Equity Ratio?

The Debt to Equity Ratio measures a company's financial leverage by comparing its total liabilities to shareholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

2. How Does the Calculator Work?

The calculator uses the Debt to Equity Ratio formula:

Where:

• Total Debt — All outstanding debts and liabilities
• Owners' Equity — Shareholders' equity or net worth

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

3. Importance of Debt to Equity Ratio

Details: This ratio is crucial for assessing a company's financial health, risk profile, and capital structure. It helps investors and creditors evaluate the company's ability to meet its financial obligations.

4. Using the Calculator

Tips: Enter total debt and owners' equity in the same currency units. Both values must be positive numbers. The result is a unitless ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is a good debt to equity ratio?
A: Generally, a ratio below 2.0 is considered acceptable, but this varies by industry. Lower ratios indicate less risk.

Q2: What does a high debt to equity ratio indicate?
A: A high ratio suggests the company has been aggressive in financing growth with debt, which could lead to volatile earnings.

Q3: Can the ratio be negative?
A: Yes, if owners' equity is negative (when liabilities exceed assets), the ratio becomes negative, indicating financial distress.

Q4: How does this differ from debt ratio?
A: Debt ratio compares debt to total assets, while debt to equity compares debt to shareholders' equity.

Q5: Should this ratio be used alone?
A: No, it should be used with other financial ratios for a complete picture of a company's financial health.