Debt to Equity (also known as the "debt-equity ratio", the "risk ratio", or "gearing") is a leverage ratio that measures the weight of total debt and financial liabilities against total equity. The D/E Ratio, unlike the debt-assets ratio, uses total equity as the denominator. Ratios like these show how a company's capital structure is tilted toward debt or equity financing.
A high debt-to-equity ratio indicates a levered company, which is quite preferable for a company that is stable with significant cash flow generation, but not preferable for one on the decline. In contrast, a lower ratio indicates a firm that is less leveraged and closer to being fully funded by equity. Each industry has its own recommended debt to equity ratio.
The debt to equity ratio may affect getting funds from creditors if the debt is higher than the equity.
Often calculated as Total Liabilities (debts), which is the amount payable to third parties like loan repayment and other forms of payment. And the other value; Total Equity is the amount invested in the business by the owner.
To calculate the Debt to Equity ratio, use the following:
Total Liabilities / Total Equity
