The last balance sheet for the small company showed total assets of $1.7 million, total liabilities of $900,000, and total equity of $800,000. It has a 1.125 debt-to-equity ratio.
By dividing a company's total liabilities by the value of its shareholders, the debt-to-equity (D/E) ratio, which gauges its financial leverage, is calculated.
The D/E ratio is a crucial indicator in corporate finance. It measures the proportion of debt that a company is using to finance its operations as opposed to cash on hand. Debt-to-equity ratios fall under a specific category of gearing.
Calculation:
Debt to equity ratio equals debt to equity
Liabilities plus debt total $900,000
Equities totaling $800,000
debt to equity is equal to 900k/800k.
debt to equity is 1.125.
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