1. What is Debt to Equity Ratio?

The Debt to Equity (D/E) Ratio is a financial metric that compares a company's total liabilities to its shareholder 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 to Equity formula:

Where:

• \( \text{Total Debt} \) — Sum of all short-term and long-term liabilities (currency)
• \( \text{Total Equity} \) — Total shareholders' equity (currency)

Explanation: The ratio indicates what proportion of equity and debt the company is using to finance its assets.

3. Importance of D/E Ratio

Details: The D/E ratio is a key indicator of financial health. A high ratio suggests aggressive financing with debt which can result in volatile earnings. A low ratio indicates more conservative financing with equity.

4. Using the Calculator

Tips: Enter total debt and total equity in the same currency units. Both values must be positive, with total equity greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good debt to equity ratio?
A: This varies by industry, but generally a ratio below 1.0 is considered conservative, while ratios above 2.0 are considered aggressive.

Q2: How does D/E ratio differ from debt ratio?
A: Debt ratio compares total debt to total assets, while D/E ratio compares debt to equity.

Q3: Can D/E ratio be negative?
A: Yes, if a company has negative equity (more liabilities than assets), the ratio will be negative.

Q4: Why do industries have different D/E standards?
A: Capital-intensive industries (like utilities) typically have higher ratios than service industries.

Q5: How often should D/E ratio be calculated?
A: It should be monitored quarterly along with other financial metrics.