Debt Equity Ratio

The debt-to-equity ratio is calculated by dividing a company’s total liabilities by its shareholder equity. It is a measure of the degree to which a company is financing its operations through debt versus wholly-owned funds. This ratio is a valuable metric because it provides insights into the financial health of a company, indicating how much of the company is owned by investors and how much is owed to creditors. A high debt-to-equity ratio generally means that a company has been aggressive in financing its growth with debt, which can result in volatile earnings due to the additional interest expense.