1. What is the Debt to Equity Ratio?

The Debt to Equity (D/E) ratio measures a company's financial leverage by comparing its total liabilities to its 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 simple formula:

Where:

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

Explanation: A ratio of 1 means creditors and shareholders equally contribute to assets. Higher ratios indicate more debt financing.

3. Importance of D/E Ratio

Details: The D/E ratio is a key metric for investors and creditors to assess a company's financial health, risk profile, and capital structure. It helps determine if a company is over-leveraged.

4. Using the Calculator

Tips: Enter total debt and total equity in dollars. Both values must be positive (equity must be > 0). The result is unitless.

5. Frequently Asked Questions (FAQ)

Q1: What is a good debt to equity ratio?
A: It varies by industry, but generally a ratio below 2 is considered acceptable. Ratios above 2 indicate higher financial risk.

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

Q3: Can D/E ratio be negative?
A: No, since equity can't be negative in this calculation (denominator must be positive).

Q4: What if a company has no debt?
A: The ratio would be 0, indicating no debt financing (all assets financed by equity).

Q5: How often should D/E ratio be calculated?
A: It should be monitored quarterly along with other financial statements to track leverage trends.