Debt to Equity Calculator
Calculate the debt to equity ratio to measure financial leverage and risk. This ratio compares total debt to total equity, showing how much debt a company uses to finance its assets relative to equity.
Balance Sheet Information
Ratio Results
Debt to Equity Ratio:
0.00
Total Debt:
$0
Total Equity:
$0
Leverage Analysis
Leverage Level:
N/A
Equity Multiplier:
0.00
Financial Risk:
N/A
Investment Analysis
Capital Structure:
N/A
Return Potential:
N/A
Credit Rating Impact:
N/A
Understanding Debt to Equity Ratio
The debt to equity ratio measures the relative proportion of debt and equity used to finance a company's assets. It shows how much debt a company has for every dollar of equity, providing insights into financial leverage and risk.
Debt to Equity Ratio Formula
Basic Formula
- Debt to Equity Ratio = Total Debt / Total Equity
- Expressed as a decimal or ratio
- Shows debt per dollar of equity
- Higher ratio indicates more leverage
Example Calculation
- Total Debt: $500,000
- Total Equity: $750,000
- Ratio: $500,000 / $750,000 = 0.67
- $0.67 debt for every $1 equity
Ratio Interpretation
Ratio Ranges and Risk Levels
Understanding different leverage levels
Conservative (0-0.5)
- Mostly equity financing
- Lower financial risk
- Stable operations
- Lower potential returns
Moderate (0.5-1.0)
- Balanced debt and equity
- Moderate financial risk
- Tax benefits of debt
- Balanced risk-return
Aggressive (1.0-2.0)
- Significant debt financing
- Higher financial risk
- Greater return potential
- Increased volatility
Highly Leveraged (2.0+)
- Heavy debt reliance
- Very high financial risk
- Significant return amplification
- Bankruptcy risk
Industry Benchmarks
| Industry | Typical Range | Key Factors |
|---|---|---|
| Technology | 0.1-0.5 | Intellectual property, growth focus, less tangible assets |
| Utilities | 1.0-2.0 | Capital intensive, stable cash flows, regulated |
| Real Estate | 0.8-1.5 | Property leverage, mortgage financing |
| Manufacturing | 0.5-1.0 | Equipment financing, working capital |
Components of the Ratio
Total Debt
- Short-term debt
- Long-term debt
- Bonds payable
- Notes payable
- Capital leases
Total Equity
- Common stock
- Preferred stock
- Retained earnings
- Additional paid-in capital
- Shareholders' equity
Financial Leverage Effects
Return on Equity (ROE)
- ROE = ROA × (1 + D/E)
- Debt amplifies equity returns
- Financial leverage effect
- Higher risk, higher potential returns
Risk Considerations
- Interest expense obligations
- Debt covenant compliance
- Cash flow requirements
- Economic downturn sensitivity
Advantages and Limitations
Advantages
- Easy to calculate
- Standardized measure
- Shows leverage clearly
- Useful for comparisons
Limitations
- Industry differences
- Book vs market values
- Off-balance sheet items
- Timing of measurements
Related Ratios
Debt to Asset Ratio
- Total Debt / Total Assets
- Shows asset financing
- Solvency measure
- Balance sheet focus
Debt to Capital Ratio
- Debt / (Debt + Equity)
- Shows capital structure
- Percentage perspective
- Comprehensive view
Impact on Valuation
Cost of Capital
- Higher leverage increases WACC
- Tax shields reduce effective cost
- Optimal capital structure
- Trade-off theory
Credit Ratings
- Higher ratios lower ratings
- Affects borrowing costs
- Investment grade thresholds
- Rating agency models
Key Takeaways for Debt to Equity Calculator
- Debt to Equity Ratio = Total Debt / Total Equity shows how much debt a company has relative to equity
- A ratio of 1.0 means the company has $1 of debt for every $1 of equity
- Lower ratios indicate more conservative financing with lower risk but potentially lower returns
- Higher ratios indicate greater financial leverage with higher potential returns but increased risk
- The ratio varies significantly by industry due to different capital requirements
- Used by investors, creditors, and analysts to assess financial risk and leverage
- The calculator helps evaluate capital structure and make informed investment decisions
- Use the calculator to compare leverage across companies and assess financial health