How do I calculate the debt to equity ratio?
The debt-to-equity ratio is a critical measure of financial leverage and is calculated by dividing a company's total liabilities by its shareholder equity. This ratio is an important metric for investors and analysts to consider when evaluating the financial health of a company. To calculate the debt-to-equity ratio, use the following formula:
Debt-to-Equity Ratio = Total Liabilities / Shareholder Equity
For those who are more visually inclined, this calculation can easily be done in a spreadsheet program such as Sourcetable. With this simple calculation, investors and analysts can quickly and accurately assess the financial leverage of a company.
Why is the debt-to-equity ratio important?
The debt-to-equity ratio is an important metric in finance as it provides insight into a companyâ€™s financial leverage, which can help to determine the risk of investing in the company. A higher debt-to-equity ratio indicates a higher level of financial risk, while a lower ratio indicates a lower risk.