1. What is the 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 D/E ratio formula:

Where:

• Total Liabilities — All debts and obligations (USD)
• Shareholders' Equity — Owners' stake in the company (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: A higher ratio indicates higher financial risk but may also suggest higher growth potential. It's crucial for investors assessing company risk and for companies managing their capital structure.

4. Using the Calculator

Tips: Enter total liabilities and shareholders' equity in USD. Both values must be positive (equity cannot be zero).

5. Frequently Asked Questions (FAQ)

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

Q2: Can D/E ratio be negative?
A: Yes, if shareholders' equity is negative (indicating the company has more liabilities than assets).

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

Q4: Why is D/E important for investors?
A: It helps assess a company's financial health and risk profile - higher ratios mean higher financial risk.

Q5: Should D/E be used alone?
A: No, it should be used with other financial metrics and considered in context of industry norms.