Total Debt to Equity Ratio (D/E ratio)
Total Debt to Equity Ratio (D/E ratio) Formula
What is the total debt to equity ratio and, what does it tell you?
What is Total Debt?
The total debt of a company is the sum of short-term, long-term debts, and other payment obligations.
The total debt to equity ratio is used to evaluate how much leverage a company is using, and this ratio can be found in the company’s balance sheet section in the financial statements.
What does it mean by a higher total debt to equity ratio?
A higher total debt to equity ratio indicates that the company is using more creditor financing than investor financing.
A higher total debt to equity ratio indicates that the stocks of the company can be a higher risk for investors.
If the total debt to equity ratio is too high, the company may be in trouble because it may not survive its debts payments. Due to this share price may go down.
What does it mean by a lower total debt to equity ratio?
A company with a lower total debt to equity ratio means that the company may be stable in the business. Investors may like to invest in this type of company because they are stable.
How to use the total debt to equity ratio?
If the total debt to equity ratio is too high, the company may be in trouble because it may not survive
its debts payments. Due to this share price may go down.
Investors can use the total debt to equity ratio to identify the high-risk businesses so they can avoid
investing in such businesses.
Investors may like to invest in companies with lower total debt to equity ratio value because they are stable.
So never take decisions by only looking at sales D/E ratio. Always analyze as possible by considering different factors like other ratios and business news. Always try to use multiple ratios combinedly to get a more clear picture of a company.