what is debt equity ratio
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Answer Posted / md. rofi
A measure of a company's financial leverage. Debt/equity
ratio is equal to long-term debt divided by common
shareholders' equity. Typically the data from the prior
fiscal year is used in the calculation. Investing in a
company with a higher debt/equity ratio may be riskier,
especially in times of rising interest rates, due to the
additional interest that has to be paid out for the debt.
For example, if a company has long-term debt of $3,000 and
shareholder's equity of $12,000, then the debt/equity ratio
would be 3000 divided by 12000 = 0.25. It is important to
realize that if the ratio is greater than 1, the majority of
assets are financed through debt. If it is smaller than 1,
assets are primarily financed through equity.
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