1. What is Debt to Equity Ratio?

The Debt to Equity (D/E) 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 formula:

Where:

• \( \text{Total Debt} \) — All outstanding debts and liabilities (in dollars)
• \( \text{Equity} \) — Shareholders' equity or book value (in dollars)

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 D/E Ratio

Details: The D/E ratio is a key metric for assessing a company's financial health, risk profile, and capital structure. It helps investors evaluate financial risk and compare companies within the same industry.

4. Using the Calculator

Tips: Enter total debt and equity amounts in dollars. Both values must be positive numbers (equity cannot be zero).

5. Frequently Asked Questions (FAQ)

Q1: What is a good debt to equity ratio?
A: Ideal ratios vary by industry, but generally a ratio below 2.0 is considered acceptable, while ratios above 2.0 may 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 ratio compares debt to shareholders' equity.

Q3: Can D/E ratio be negative?
A: Yes, if equity is negative (when liabilities exceed assets), but this indicates severe financial distress.

Q4: Why is D/E ratio important for investors?
A: It helps assess a company's ability to cover its obligations and indicates how aggressively it's using debt to finance growth.

Q5: How often should D/E ratio be calculated?
A: It should be monitored regularly (quarterly or annually) as part of financial statement analysis.