- Debt to equity ratio
The

**debt to equity ratio (D/E)**is afinancial ratio indicating the relative proportion of equity anddebt used to finance a company's assets. This ratio is also known as Risk, Gearing or Leverage. It is equal to total debt divided byshareholders' equity . The two components are often taken from the firm'sbalance sheet or statement of financial position (so-called book value), but the ratio may also be calculated using market values for both, if the company's debt and equity are publicly traded, or using a combination of book value for debt and market value for equity.Preferred shares can be considered part of debt or equity. Attributing preferred shares to one or the other is partially a subjective decision but will also take into account the specific features of the preferred shares.When used to calculate a company's

financial leverage , the debt usually includes only the Long Term Debt (LTD). Quoted ratios can even exclude the current portion of the LTD. The composition of equity and debt and its influence on the value of the firm is much debated and also described in theModigliani-Miller theorem .Financial analysts and stock market quotes will generally not include other types of liabilities, such as

accounts payable , although some will make adjustments to include or exclude certain items from the formal financial statements. Adjustments are sometimes also made to, for example, exclude intangible assets, and this will affect the formal equity; debt to equity will therefore also be affected.Financial

economist s and academic papers will usually refer to all liabilities as debt, and the statement that equity plus liabilities equals assets is therefore an accounting identity (it is, by definition, true). Other definitions of debt to equity may not respect this accounting identity, and should be carefully compared.**Formula**:D/E = Debt (Liabilities)/ Equity

(Sometimes only interest-bearing long-term debt is used instead of total liabilities in the calculation)

A similar ratio is debt-to-total assets (D/A), also known as debt-to-value:

:D/A = debt / assets = debt / (debt + equity)

The relationships between D/E and D/A are:

:D/A = D/E / (1 + D/E)

:D/E = D/A / (1 – D/A)

In the financial industry (particularly banking), a similar concept is equity to total assets (or equity to risk-weighted assets), otherwise known as

capital adequacy ::Capital Adequacy = E / ASince D + E = A (by theaccounting equation ), D/A + E/A = 1, so E/A = 1 - D/A. For instance, if a company has 10% capital adequacy, they have 90% debt-to-assets.**Background**On a

balance sheet , the formal definition is that debt (liabilities) plus equity equals assets, or any equivalent reformulation. Both the formulas below are therefore identical::A = D + E:E = A – D or D = A – EDebt to equity can also be reformulated in terms of assets or debt:

:D/E = D /(A – D) = (A – E) / E

**Example**General Electric Co. ( [

*http://finance.yahoo.com/q/bs?s=GE&annual*] )

*Debt / equity: 4.304 (total debt / stockholder equity) (340/79)

*Other equity / shareholder equity: 7.177 (568,303,000/79,180,000)

*Equity ratio : 12% (shareholder equity / all equity) (79,180,000/647,483,000)**ee also***

Financial ratio

*Wikimedia Foundation.
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### Look at other dictionaries:

**Debt-to-equity ratio**— The debt to equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders equity and debt used to finance a company s assets.[1] Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage. The … Wikipedia**debt-to-equity ratio**— Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long term debt by common stockholder equity. Bloomberg Financial Dictionary * * * debt to equity ratio UK US noun… … Financial and business terms**debt to equity ratio**— See gearing ratio. Dresdner Kleinwort Wasserstein financial glossary … Financial and business terms**Long-term debt to equity ratio**— A capitalization ratio comparing long term debt to shareholders equity. The New York Times Financial Glossary … Financial and business terms**Total debt to equity ratio**— A capitalization ratio comparing current liabilities plus long term debt to shareholders equity. The New York Times Financial Glossary … Financial and business terms**long-term debt-to-equity ratio**— A capitalization ratio comparing long term debt to shareholders equity. Bloomberg Financial Dictionary … Financial and business terms**total debt-to-equity ratio**— A capitalization ratio comparing current liabilities plus long term debt to shareholders equity. Bloomberg Financial Dictionary … Financial and business terms**Коэффициент платежеспособности, Коэффициент задолженности (DEBT-TO-EQUITY RATIO)**— Коэффициент, отражающий отношение обязательств к акционерному капталу; часто выражается отношением общей суммы обязательств к сумме обязательств и акционерного капитала. См. также Отношение общего долга к сумме активов (Fotal Debt to Total Asset… … Словарь терминов по управленческому учету**net debt to equity ratio**— See gearing ratio. Dresdner Kleinwort Wasserstein financial glossary … Financial and business terms**Debt-to-capital ratio**— A company s debt to capital ratio or D/C ratio is the ratio of its total debt to its total capital, its debt and equity combined. The ratio measures a company s capital structure, financial solvency, and degree of leverage, at a particular point… … Wikipedia