Debt to Equity Ratio Calculator

Calculate the debt to equity ratio of a company to assess its financial leverage.

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What is Debt to Equity Ratio?

The Debt to Equity Ratio (DER) is a financial ratio that indicates the relative proportion of a company’s debt to its shareholder’s equity.

The ratio is calculated by dividing total debt by total shareholder’s equity, providing insight into the company’s financial leverage and risk. A higher ratio suggests greater reliance on debt financing, which may indicate higher financial risk, while a lower ratio indicates a more conservative approach with less debt.

Understanding the debt to equity ratio is crucial for investors and creditors as it helps assess the company’s ability to meet its financial obligations and its overall financial health. It is often used in conjunction with other financial metrics to evaluate a company’s performance and risk profile.

Debt to Equity Ratio Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Total Debt} &= \mathrm{D}\newline\text{Total Shareholder's Equity} &= \mathrm{E}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Debt to Equity Ratio} = \mathrm{DER} \newline = \frac{\mathrm{D}}{\mathrm{E}}\end{gather*}

Debt to Equity Ratio Calculation Examples

Example 1

A company has total debt of $500,000 and total shareholder's equity of $250,000.

Let's calculate the debt to equity ratio to understand its financial leverage:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Total Debt}\space(\mathrm{D}) &= \mathrm{{\$}500{,}000}\newline\text{Total Shareholder's Equity}\space(\mathrm{E}) &= \mathrm{{\$}250{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Debt to Equity Ratio}\space(\mathrm{DER})\newline\begin{aligned}&= \frac{\mathrm{D}}{\mathrm{E}}\newline&= \frac{\mathrm{{\$}500{,}000}}{\mathrm{{\$}250{,}000}}\newline&= 2\end{aligned}\end{gather*}

This indicates that the debt to equity ratio is 2, suggesting how much debt the company has for every dollar of shareholder's equity.

Example 2

Consider a startup with total debt of $300,000 and total shareholder's equity of $700,000.

Let's calculate the debt to equity ratio to evaluate its financial structure:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Total Debt}\space(\mathrm{D}) &= \mathrm{{\$}300{,}000}\newline\text{Total Shareholder's Equity}\space(\mathrm{E}) &= \mathrm{{\$}700{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Debt to Equity Ratio}\space(\mathrm{DER})\newline\begin{aligned}&= \frac{\mathrm{D}}{\mathrm{E}}\newline&= \frac{\mathrm{{\$}300{,}000}}{\mathrm{{\$}700{,}000}}\newline&= 0.429\end{aligned}\end{gather*}

This calculation shows that the debt to equity ratio is 0.429, reflecting the startup's reliance on debt versus shareholder's equity financing.

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