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Debt to Equity Ratio (Financial Leverage Ratio)
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Formula to calculate debt to equity ratio (financial leverage ratio): 

 

Debt to Equity Ratio = Short Term Debt + Long Term Debt

                                            Total Shareholders Equity

 

 

Debt to equity ratio definition and explanation:

Debt to Equity Ratio is also referred to as Debt Ratio, Financial Leverage Ratio or Leverage Ratio.

The debt to equity (debt or financial leverage) ratio indicates the extent to which the business relies on debt financing.

Upper acceptable limit of the debt to equity (debt or financial leverage) ratio is usually 2:1, with no more than one-third of debt in long term.

A high financial leverage or debt to equity ratio indicates possible difficulty in paying interest and principal while obtaining more funding.

 
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The debt to equity ratio is listed in our profitability ratios.

 
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