How to Calculate Debt-to-Equity Ratio (2024)

FAQs

How to Calculate Debt-to-Equity Ratio? ›

The formula for calculating the debt-to-equity ratio is to take a company's total liabilities and divide them by its total shareholders' equity.

Generally, a good debt-to-equity ratio is anything lower than 1.0. A ratio of 2.0 or higher is usually considered risky. If a debt-to-equity ratio is negative, it means that the company has more liabilities than assets—this company would be considered extremely risky.

Debt to equity ratio formula is calculated by dividing a company's total liabilities by shareholders' equity. Liabilities: Here, all the liabilities that a company owes are taken into consideration. Shareholder's equity: Shareholder's equity represents the net assets that a company owns.

Is 0.5 a good debt-to-equity ratio? A 0.5 D/E ratio is good in the sense that the company has more equity than debt financing. This suggests lower risk for creditors and investors. However, it might also indicate the company is missing out on potential growth opportunities that debt financing can provide.

A company's debt ratio can be calculated by dividing total debt by total assets. A debt ratio of greater than 1.0 or 100% means a company has more debt than assets while a debt ratio of less than 100% indicates that a company has more assets than debt.

Generally speaking, a debt-to-equity ratio of 1.5 or less is considered good.

Although it varies from industry to industry, a debt-to-equity ratio of around 2 or 2.5 is generally considered good.