1. What is Debt Equity Ratio?

The Debt Equity Ratio is a financial ratio that indicates the relative proportion of shareholders' equity and debt used to finance a company's assets. It measures a company's financial leverage.

2. How Does the Calculator Work?

The calculator uses the Debt Equity Ratio formula:

Where:

• \( Debt \) — Total liabilities/borrowings (USD)
• \( Equity \) — Total 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 Debt Equity Ratio

Details: This ratio is important for assessing a company's financial health. A high ratio generally means a company has been aggressive in financing growth with debt, which can result in volatile earnings.

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 debt equity ratio?
A: It varies by industry, but generally a ratio of 0.5-1.5 is considered reasonable. Higher ratios may indicate higher financial risk.

Q2: How is this ratio different from debt ratio?
A: Debt ratio compares total debt to total assets, while debt equity ratio compares debt to equity.

Q3: Can the ratio be negative?
A: No, since both debt and equity are positive values (with equity > 0), the ratio cannot be negative.

Q4: What if equity is zero?
A: The ratio becomes undefined when equity is zero, which typically indicates serious financial distress.

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