This debt to equity ratio calculator estimates the financial leverage ratio which is the proportion of liabilities and debts of a company against its equity. There is in depth information on the debt to equity formula below the tool.
How does this debt to equity ratio calculator work?
The algorithm of this debt to equity ratio calculator applies the formula explained here that considers two variables:
Total liabilities (TL) a company has.
Equity value (EV).
Debt to Equity Ratio formula (DER) = TL / EV
The optimal levels of the debt to equity ratio (DER)
The ideal value of DER is considered to be 1.
Please note that the optimal level depends from one industry to another.
Many financial experts consider that a maximum allowable debt to equity ratio is between 1.5 and 1.9.
Example of a calculation
Let’s assume a business with this situation:
Total liabilities = $100,000
Equity value = $110,000
The debt to equity ratio in this case is 0.91 (or 90.91%).01 Dec, 2014