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 financing comes from creditors versus owners.

2. How Does the Calculator Work?

The calculator uses the standard D/E ratio formula:

Where:

• \( \text{Total Debt} \) — Sum of short-term and long-term debt (USD)
• \( \text{Total Equity} \) — Shareholders' equity (USD)

Explanation: The ratio shows how much debt a company is using to finance its assets 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. Higher ratios indicate more debt financing and potentially higher risk.

4. Using the Calculator

Tips: Enter total debt and total equity in USD. Both values must be positive numbers (equity must be greater than zero).

5. Frequently Asked Questions (FAQ)

Q1: What is a good D/E ratio?
A: Ideal ratios vary by industry, but generally below 2.0 is considered acceptable, with lower ratios indicating less risk.

Q2: Can D/E ratio be negative?
A: Yes, if shareholders' equity is negative (when liabilities exceed assets), the ratio becomes negative.

Q3: How does D/E differ from debt ratio?
A: Debt ratio compares debt to total assets, while D/E compares debt to equity.

Q4: When is high D/E ratio acceptable?
A: In capital-intensive industries like utilities or telecom, higher ratios are more common and acceptable.

Q5: How often should D/E be calculated?
A: It should be monitored quarterly along with other financial metrics.