GENERAL KNOWLEDGE

Detailed explanation-1: -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-2: -If you have a $50, 000 loan and $10, 000 is due this year, the $10, 000 is considered a current liability and the remaining $40, 000 is considered a long-term liability or long-term debt. When calculating the debt to equity ratio, you use the entire $40, 000 in the numerator of the equation.

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. A higher D/E ratio means the company may have a harder time covering its liabilities.

Detailed explanation-4: -The mathematical formula for the debt-equity ratio is given below. Debt equity ratio = Total debt of the business entity / Total equity of the business entity. In the above ratio, the total debt includes the long term debt of the business and the debentures.