DEBT TO EQUITY RATIO
Debt to Equity Ratio
The debt-to-equity ratio is a financial ratio indicating the relative proportion of equity and debt used to finance a company's assets - which is an indicator of the financial leverage. It is equal to total debt divided by shareholders' equity. The two components are often taken
This is a useful measure as it helps the investor see the way management has financed operations. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense as well as volatile cash flow as principal payments on debt come due.
If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings per share than it would have without this outside financing. If this were to increase earnings by a greater amount than the interest on debt, then the shareholders benefit as more earnings are being spread among the same amount of stock. However, as stated increased interest and the need to repay the principal on borrowed funds can far outweigh the benefit.
The Formula is:
Debt to Equity = Total Liabilities / Stockholders' Equity
|Total Current Liabilities||4,746||3,714||2,532|
|Long Term Debt||533||1,282||1,267|
|Total Stockholder Equity||2,672||1,197||431|
|Debt to Equity Ratio||2.1:1||4.4:1||9.1:1|
|Long Term Debt to Equity||.2:1||1.1:1||2.9:1|
|Long Term Debt to Equity - items||533 / 2,672||1,282 / 1,197||1,267 / 431|
I believe this is one of the most important metrics to measure and manage as you create strategic plans.
The Long-Term Debt To Total Capitalization Ratio has the same objective.