How to Calculate Debt to Equity Ratio
Debt to equity (D/E) is a financial ratio indicating the relationship between the outsiders funds (debts) and the shareholders funds (equity). A higher ratio indicates that the company is aggressive in financing its growth with debt, and thus it may not be able to generate enough cash to satisfy its debt obligations. A ratio of 1.0 means that half the structure is from equity, and another half is from debt.
Learn how to calculate Debt to Equity ratio with the following example:
EFL Company has the following data:
Common Equity $250,000
Long-Term Debt $500,000
Short-Term Debt $200,000
Preferred Equity $370,000
Retained Earnings $230,000
Additional Paid In Capital $70,000
Calculate the Debt to Equity Ratio.
Solution:
Total Debt = Short-Term Debt + Long-Term Debt = 200,000 + 500,000 = $700,000
Total Shareholders' Equity = Common Equity + Preferred Equity + Additional Paid In Capital + Retained Earnings = 250,000 + 370,000 + 70,000 + 230,000 = $920,000
D/E = Total Debt / Total Equity = 700,000 / 920,000 = 0.76 times
* Next: How to Calculate Current Yield
Learn how to calculate Debt to Equity ratio with the following example:
EFL Company has the following data:
Common Equity $250,000
Long-Term Debt $500,000
Short-Term Debt $200,000
Preferred Equity $370,000
Retained Earnings $230,000
Additional Paid In Capital $70,000
Calculate the Debt to Equity Ratio.
Solution:
Total Debt = Short-Term Debt + Long-Term Debt = 200,000 + 500,000 = $700,000
Total Shareholders' Equity = Common Equity + Preferred Equity + Additional Paid In Capital + Retained Earnings = 250,000 + 370,000 + 70,000 + 230,000 = $920,000
D/E = Total Debt / Total Equity = 700,000 / 920,000 = 0.76 times
* Next: How to Calculate Current Yield