Definition – What is the Debt Equity Ratio?
Debt Equity Ratio is the ratio of total debt to the equity in a company.
A debt-equity ratio of ‘1’ means that there is the same amount of debt as there is equity.
A debt-equity ratio of more than one means that there is more debt than equity in the firm.
A debt-equity ratio of less than one means that there is more equity than debt in the firm.
Formula – How to calculate Debt Equity Ratio
Debt Equity Ratio = Total Debt / Total Equity
A company has total debt of $5,000 and total equity of $2,000.
Debt Equity Ratio = $5,000 / $2,000 = 2.5
Therefore, this company’s debt equity ratio is 2.5.
Sources and more resources
- Harvard Business Review – A refresher on Debt-to-Equity Ratio – Explains what D/E is, how it is used, and how it is calculated.
- Wikipedia – Debt to Equity Ratio – An explanation of the debt-equity ratio.
- Investopedia – Debt/Equity Ratio – Another explanation of the debt-equity ratio.
- The Balance SMB – Debt-To-Equity Ratio: How it’s Calculated and What It Measures – A summary of debt-to-equity.
- Finance Formulas – Debt to Equity Ratio (D/E) – The formula for debt to equity.
- Accounting Tools – Debt to equity ratio – Another formula explanation for debt to equity.