1. What is Debt Equity Ratio?

The Debt Equity Ratio (D/E) is a financial ratio that compares a company's total debt to its total equity. It measures the degree to which a company is financing its operations through debt versus wholly-owned funds.

2. How Does the Calculator Work?

The calculator uses the Debt Equity Ratio formula:

Where:

• \( \text{Total Debt} \) — All outstanding debts and liabilities (USD)
• \( \text{Total Equity} \) — Shareholder's equity or book value (USD)

Explanation: The ratio shows the proportion of equity and debt the company uses to finance its assets. A higher ratio means more debt relative to equity.

3. Importance of Debt Equity Ratio

Details: This ratio is crucial for assessing a company's financial leverage and risk. Creditors and investors use it to evaluate the company's ability to meet its financial obligations.

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 below 2.0 is considered acceptable. Ratios above 2.0 may indicate higher financial risk.

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

Q3: What if equity is negative?
A: The ratio becomes meaningless when equity is negative, as it indicates the company has more liabilities than assets.

Q4: Should this ratio be high or low?
A: Generally lower is safer, but some industries naturally operate with higher leverage. Compare to industry averages.

Q5: How often should this ratio be calculated?
A: It should be monitored quarterly along with other financial statements to track financial health over time.