The debt-to-equity ratio (D/E) is a financial ratio that measures the relative proportions of debt and equity used to finance a company’s assets. It is calculated by dividing a company’s total debt by its total equity. A high debt-to-equity ratio indicates that a company is using more debt to finance its operations, while a low debt-to-equity ratio indicates that a company is using more equity to finance its operations.The debt-to-equity ratio is an important measure of financial leverage. Financial leverage is the use of debt to finance assets. A high debt-to-equity ratio can increase a company’s risk of financial distress, while a low debt-to-equity ratio can reduce a company’s risk of financial distress.The debt-to-equity ratio can also be used to compare companies within the same industry. Companies with similar debt-to-equity ratios are often considered to be in the same risk class.
There are a number of benefits to using the debt-to-equity ratio. First, it can help investors to assess a company’s financial leverage. Second, it can help investors to compare companies within the same industry. Third, it can help investors to identify companies that are at risk of financial distress.