Debt to Equity Ratio

The Debt to Equity Ratio (D/E ratio) measures the amount of debt (outstanding loans, overdraft, and taxes) your firm has relative to its equity (shareholder funds). In essence, the D/E Ratio refers to the proportion of your firm’s total assets that can be claimed by debtors.

D/E Ratio Calculation

D/E Ratio = (Overdraft + Long-Term Debt) / Total Equity

The D/E Ratio is included in the share price calculation. The higher the D/E Ratio, the higher the relative risk to investors so the less value a share has.

You can reduce your D/E Ratio by reducing your overdraft and repaying your debt.

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