Debt to equity ratio shows the relationship between a company’s total debt with Shareholders Funds.
If the purpose of calculating debt to equity ratio is to examine financial solvency of a firm in terms of its ability to avoid financial risk.
Formula of Debt to equity ratio?
Debt to Equity Ratio = Debt/Equity (Shareholder Funds)
Debts = Long term loan
Equity (Shareholder Funds) = Share Capital (Equity + Preference)+ Reserve & Surplus
Example of how to calculate Debt to equity ratio
