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What is the main difference between Debt to Equity ratio and Debt to Total Assets ratio?

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Question added by Muhammad Hussain , ACCOUNTANT , EPESOL PVT LTD
Date Posted: 2016/06/10

Debt is the amount borrowed from Banks

Equity is the amount contributed by Promoters

Assets are those purchased using the Debt and Equity

So, Debt to Equity ratio is ratio of the outside funds (Borrowed from Banks) and inside funds (Infused by the Promoters)

Debt to Total Assets Ratio is the ratio of the funds borrowed from outside to the total assets purchased using Debt and Equity

For exp: Total Cost of the Project is AED 1 Mn. Out of which 0.3 Mn is Contributed by Promoters and 0.7 Mn is borrowed from the Bankers. Here the Debt to Equity ratio is 30:70

Assets build /purchased with these funds will be 1 Mn. So, Debt to Total Assets Ratio is 70:100

Siddharth Yadav
by Siddharth Yadav , Senior Associate, Deals , Pwc - United Arab Emirates

Debt to Equity Ratio indicates the proportion of Debt (Externally Borrowed Funds) amount a company has on its sheets, to its Equity (Promotors money/ ownership) amount. This ratio provides one with an insight into the company's leveraged position.

Debt to Total Assets is a ratio that,simply put, computes the percentage of total assets that are financed by debtors/lendors.

 

The main difference, to my knowledge is that Debt to total assets clusters both tangible and intangible assets whilst the Debt to Equity ratio usually involves reducing the intangible assets from the Equity position.(In other words, involving only operational assets). This helps in getting a more insightful look into the company's leveraged position as merger activities can usually inflate the Intangible assets in terms of purchased goodwill.

debt is the thoes amount who has borrowed from the bank

equity is the main part or ownership in the assets

debt to equity ratio indicates how much debet a company is using to finanace its assets amount compare the shareholder equity debt to total assets ratio indicater of financail leverage

Frank Mwansa
by Frank Mwansa , ACCOUNTING LECTURER , FREELANCER

Debt to  equity ratio is a debt used to measure a company's financial leverage calculated by dividing a company's liabilities by its stockholders equity. 

The debt to equity ratio indicates how much debt a company is using to finance its assets compared to the amount of value represented in shareholders equity.

The Debt to total assets ratio is an indicator of financial leverage. The ratio tells you the percentage of total assets that were financed by creditors, liabilities debt. The debt to total assets ratio is calculated by dividing an entity's total liabilities by its total assets.

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