Our powerful debt to equity ratio calculator is used to assess a company’s total liabilities of a business to its shareholder equity, providing insights into the company’s capital structure and risk profile.
Consider a company with $500,000 in total debt and $250,000 in shareholder equity.
Using the calculator, we’d find:
Debt to Equity Ratio = $500,000 / $250,000 = 2This result indicates that for every dollar of equity, the company has $2 of debt.
Debt to Equity Ratio Calculator
| Total Liabilities | Shareholder’s Equity | Debt to Equity Ratio |
|---|---|---|
| $500,000 | $250,000 | 2.00 |
| $1,000,000 | $800,000 | 1.25 |
| $200,000 | $300,000 | 0.67 |
| $1,500,000 | $500,000 | 3.00 |
| $750,000 | $1,000,000 | 0.75 |
| $2,000,000 | $1,500,000 | 1.33 |
| $1,200,000 | $600,000 | 2.00 |
| $900,000 | 1,100,000 | 0.82 |
| 400,000 | 600,000 | 0.67 |
| 3,500,000 | 1,500,000 | 2.33 |
| 1,800,000 | 900,000 | 2.00 |
| 2,200,000 | 1,800,000 | 1.22 |
| 600,000 | 400,000 | 1.50 |
| 2,800,000 | 700,000 | 4.00 |
| 500,000 | 900,000 | 0.56 |
Debt to Equity Ratio Formula
The formula for calculating the debt to equity ratio is straightforward:
Debt to Equity Ratio = Total Liabilities / Shareholder's EquityA tech startup with $1,000,000 in total liabilities and $800,000 in shareholder’s equity:
Debt to Equity Ratio = $1,000,000 / $800,000 = 1.25This ratio suggests that the startup has $1.25 of debt for every dollar of equity.
How do you calculate the debt-to-equity ratio?
Gather financial data: Collect information on total liabilities and shareholder’s equity from the company’s balance sheet.
Sum up liabilities: Add all short-term and long-term debt obligations.
Determine shareholder’s equity: This is typically listed as a separate line item on the balance sheet.
Apply the formula: Divide total liabilities by shareholder’s equity.
Let’s walk through an example:
Imagine a retail company with:
- Short-term debt: $200,000
- Long-term debt: $800,000
- Shareholder’s equity: $1,500,000
- Total liabilities = $200,000 + $800,000 = $1,000,000
- Debt to Equity Ratio = $1,000,000 / $1,500,000 = 0.67
This ratio indicates that the company has $0.67 of debt for every dollar of equity, suggesting a relatively conservative financial structure.
What is a good ratio of debt-to-equity?
- 0.5 to 1.5: Generally considered healthy for established companies
- Below 0.5: May indicate underutilization of leverage
- Above 2: Often seen as risky, especially for mature businesses
Determining a “good” debt-to-equity ratio depends on various factors, including industry norms, company size, and growth stage.
For instance, a manufacturing company with a debt-to-equity ratio of 1.2 might be considered to have a healthy financial structure, as it balances the use of debt financing with equity.
A tech startup might have a higher ratio, say 3, which could be acceptable given its growth potential and industry dynamics.
How do you convert debt-to-equity ratio to debt ratio?
The debt ratio is another important financial metric that compares total liabilities to total assets.
Calculate the debt-to-equity ratio
Use the formula: Debt Ratio = Debt-to-Equity Ratio / (1 + Debt-to-Equity Ratio)
Let’s say a company has a debt-to-equity ratio of 1.5.
Debt Ratio = 1.5 / (1 + 1.5) = 1.5 / 2.5 = 0.6
This means 60% of the company’s assets are financed by debt.
Sources / References
- Investopedia: Debt-to-Equity Ratio
- Corporate Finance Institute: Debt to Equity Ratio
- U.S. Securities and Exchange Commission: Beginners’ Guide to Financial Statements
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