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What is a Good Debt to Equity Ratio and Why is D/E ratio important?
By IncomeBuddies.com  •  May 3, 2021
Debt-to-Equity Ratio (D/E) is the metric help us visualize how capital has been raised to finance the operation of the company. D/E Ratio is generally used to evaluate a company’s financial health. A higher number will mean the company is highly leverage, and a lower number will mean the company is less leveraged. Another name for debt-to-equity ratio is risk ratio, or leverage ratio (“Gearing Ratio” for REITs). Numbers to be considered in Debt-to-Equity Ratio are:
  • Short Term Debt
  • Long Term Debt
  • Fixed Payment Obligations
  • Total Liabilities
  • Total Shareholders’ Equities
Debt-to-Equity Ratio is a relatively good measurement on the risk the company is taking to continue operation. HOW IS DEBT-TO-EQUITY RATIO CALCULATED? The formula for Debt-to-Equity Ratio can be calculated by dividing the total shareholders’ equity by the total liabilities. Debt-to-Equity Ratio = Total Liabilities/ Total Shareholders’ Equities or Debt-to-Equity Ratio = (Short term debt + Long term debt + Fixed payment obligations) / Shareholders’ Equity...
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