Debt to Equity Ratio
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How is D/E calculated
Debt - Equity Ratio = Total Liabilities / Shareholders' Equity
A high debt/equity ratio generally means
a company has been aggressive in financing its growth with debt
Equity is refered to
difference between the total value of a corporation or individual's assets and that corporation or individual's liabilities
Aggressive leveraging practices are often associated
high levels of risk
D/E ratios should only be used to compare companies
in the same industry
If a lot of debt is used to finance increased operations (high debt to equity)
the company could potentially generate more earnings than it would have without this outside financing
