Debt to Equity Ratio Calculator - Calculator Academy

Enter the total liabilities (debt) and stockholders’ equity into the debt-to-equity ratio calculator. The calculator will display the debt-to-equity ratio and percentage.

Debt to Equity Ratio Formula

The following equation can be used to calculate the debt-to-equity ratio.

D:E = D/E*100

Where D:E is the debt-to-equity ratio
E is the total equity
D is the total debt

Total equity refers to the residual interest in the assets of a company after deducting liabilities and represents the owners’ stake in the business.

Total debt refers to the overall amount of money owed by an individual, organization, or government, including all outstanding loans, bonds, and other borrowed funds.

Debt to Equity Ratio Definition

The Debt to Equity Ratio is a financial metric that measures the proportion of a company’s financing that comes from debt compared to equity. It is calculated by dividing a company’s total debt by its total equity. In simple terms, it reflects the amount of debt a company has for each unit of equity.

The Debt to Equity Ratio is important because it provides insights into a company’s financial leverage and risk. A high Debt to Equity Ratio indicates that a company relies heavily on debt financing, which may increase its financial risk. This is because debt requires regular interest payments and principal repayment, which can strain a company’s cash flow. On the other hand, a low Debt to Equity Ratio suggests that a company is primarily financed through equity, indicating lower financial risk since there is no obligation to repay equity investors.

Investors and creditors often use the Debt to Equity Ratio to assess a company’s financial health and ability to meet its financial obligations. A higher ratio may imply that a company is more leveraged and may have difficulty repaying its debts, potentially lowering its creditworthiness. On the contrary, a lower ratio may indicate a more stable financial position and a better ability to weather economic downturns.

Understanding a company’s Debt to Equity Ratio helps stakeholders evaluate its capital structure and make informed decisions regarding investment, lending, and risk management.

How to calculate debt to equity ratio?

First, measure the total equity.
Determine the total equity of the individual or business.
Next, measure the total debt.
Determine the total debt of the individual or business.
Finally, calculate the debt to equity ratio.
Using the formula above, calculate the debt to equity ratio.

FAQ

What is a debt to equity ratio?

A debt to equity ratio measures the ratio of total debt owned to total equity owned of an individual