What it is:
This ratio indicates how much the company is leveraged (in debt) by comparing what is owed to what is owned. A high debt to equity ratio could indicate that the company may be over-leveraged, and should look for ways to reduce its debt.
Tip: Take control of your business spending by using charge cards which require you to pay your balance in full each month (see how American Express can help).
When to use it:
Equity and debt are two key figures on a financial statement, and lenders or investors often use the relationship of these two figures to evaluate risk. The ratio of your business' equity to its long-term debt provides a window into how strong its finances are. Equity will include goods and property your business owns, plus any claims it has against other entities. Debts will include both current and long-term liabilities.
The formula:
Total liabilities divided by total equity.
Calculate your debt to equity ratio:
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