Debt / Equity Ratio

Debt / Equity Ratio looks at a company’s borrowing and the level of leverage. It compares the company’s debt with the total value of shareholder’s equity. The calculation includes both short-term and long-term debt. A high ratio indicates that the company is highly leveraged. This may not be a problem if the company can use the money it borrowed to generate a healthy profit and cash flow.

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Formula

Debt / Equity Ratio = Total liabilities / Total shareholders’ equity


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