BUSINESS ADMINISTRATION
PRINCIPLES AND PRACTICE OF MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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debt to equity ratio
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current ratio
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Detailed explanation-1: -The D/E ratio relates the amount of a firm’s debt financing to its equity. To calculate the D/E ratio, divide a firm’s total liabilities by its total shareholder equity-both items are found on a company’s balance sheet.
Detailed explanation-2: -The Debt to Equity ratio (also called the “debt-equity ratio”, “risk ratio”, or “gearing”), is a leverage ratio that calculates the weight of total debt and financial liabilities against total shareholders’ equity.
Detailed explanation-3: -The debt-to-equity ratio (D/E ratio) shows how much debt a company has compared to its assets. It is found by dividing a company’s total debt by total shareholder equity.
Detailed explanation-4: -A D/E ratio of 2 indicates that the company derives two-thirds of its capital financing from debt and one-third from shareholder equity, so it borrows twice as much funding as it owns (2 debt units for every 1 equity unit).
Detailed explanation-5: -D/E ratio is an important metric in corporate finance. It is a measure of the degree to which a company is financing its operations with debt rather than its own resources. Debt-to-equity ratio is a particular type of gearing ratio.