Small presentation on debt to equity ratio

1. SICSR
DEBT TO EQUITY RATIO
NAME:TEJAS S.MHASKE
MBA[IT] A
PRN:15030141102

2. Definition of Debt
Debt is what the company owes and has to pay interest on, such as:
Loans from banks.
Company bonds.
Preferred stock.
Short term debt has to be paid in the next twelve months.
Long term debt has to be paid later than the next twelve months.

3. Definition of Equity
Assets are everything that the company owns at that moment.
Liabilities are everything the company owes at that moment.
Equity is assets minus liabilities.
Also called shareholder's equity.
Also called net worth.
Also called book value.
Also called retained earnings.

4. 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. Closely related to leveraging,
the ratio is also known as Risk, Gearing or Leverage.
Compares debt to equity.
Equals debt divided by equity.
Also called D/E, Leverage, Risk, or Gearing.
Indicates what proportion of equity and debt the company is using to finance its assets.

5. FORMULA
In a general sense, the ratio is simply debt divided by equity. However, what is classified as debt can
differ depending on the interpretation used. Thus, the ratio can take on a number of forms including:
◦ Debt / Equity
◦ Long-term Debt / Equity
◦ Total Liabilities / Equity
A similar ratio is debt-to-capital(DC),where capital is the sum of debt and equity.
◦ DC=total liabilitiestotal capital=debt(debt + equity)
The relationship between DE and DC is:
◦ DC=D(D+E)=DE(1+DE)
The debt-to-total assets(DA) is defined as:
◦ DA=total liabilitiestotal assets=debt(debt + equity + non_financial_liabilities)

6. Example
Using the debt-to-equity formula and the information
above, we can calculate that Company XYZ's debt-to-
equity ratio is:
$15,000,000 / $10,000,000 = 1.5 times, or 150%
This means that for every dollar of Company XYZ owned
by the shareholders, Company XYZ owes $1.50 to
creditors.
It is important to note that there are many ways to
calculate the debt-to-equity ratio, and therefore it is
important to be clear about what types of debt and
equity are being used when comparing debt-to-equity
ratios.
COMPANY XYZ
Short-term debt $5,000,000
Long-term debt $10,000,000
Total Debt $15,000,000
Common Equity $500,000
Preferred Equity $250,000
Additional Paid in
Capital
$6,000,000
Retained Earnings $3,250,000
Total Shareholder’s
Equity
$10,000,000