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What is the formula for calculating the debt-to-equity ratio?

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Question added by Mohammad Iqbal Abubaker , Jahaca Pty Ltd - Accounts Administrator , Jahaca Pty Ltd - Accounts Administrator
Date Posted: 2016/02/05
MOHAMED RAFI PARAKKAL
by MOHAMED RAFI PARAKKAL , Senior Accountant , Bgroup of Companies

It expresses the relative proportion of  debt and Equity in financing the assets of a firm

 

Abu Bakar Ashfaq
by Abu Bakar Ashfaq , Senior Consultant , PricewaterhouseCoopers Middle East

Debt / Equity or Debt / (Debt + Equity)

Mohammad Iqbal Abubaker
by Mohammad Iqbal Abubaker , Jahaca Pty Ltd - Accounts Administrator , Jahaca Pty Ltd - Accounts Administrator

Debt/Equity Ratio is a debt ratio used to measure a company's financial leverage, calculated by dividing a company’s total liabilities by its stockholders' equity. The D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity.

 

The formula for calculating D/E ratios can be represented in the following way:

 

Debt - Equity Ratio = Total Liabilities / Shareholders' Equity

 

The result may often be expressed as a number or as a percentage.

 

This form of D/E may often be referred to as risk or gearing.

 

2. This ratio can be applied to personal financial statements as well as corporate ones, in which case it is also known as the Personal Debt/Equity Ratio. Here, “equity” refers not to the value of stakeholders’ shares but rather to the difference between the total value of a corporation or individual’s assets and that corporation or individual’s liabilities. The formula for this form of the D/E ratio, then, can be represented as:

 

D/E = Total Liabilities / (Total Assets - Total Liabilities)

 

 

 

 

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