What is the formula for calculating the debt-to-equity ratio?

The formula for calculating the debt-to-equity ratio is to take a company’s total liabilities and divide them by its total shareholders’ equity. A good debt-to-equity ratio is generally below 2.0 for most companies and industries.

What are the risks of having a high debt-to-equity ratio?

An extremely high debt-to-equity ratio is not a good sign for a company. It means that a company is highly leveraged, and debt needs to be paid back with interest. High debt often results in higher interest rates, increasing risk, and will most likely decrease the stock price.

What does a debt-to-equity ratio above 1.0 indicate?

A ratio of 0.5 means that you have $0.50 of debt for every $1.00 in equity. A ratio above 1.0 indicates more debt than equity. So, a ratio of 1.5 means you have $1.50 of debt for every $1.00 in equity. Again, the debt-to-capital ratio can help you determine if you have too much business debt.

What is a healthy debt-to-equity ratio?

Generally, a debt to equity ratio of no high than 1.0 is considered to be reasonable. However, what constitutes a good debt to equity ratio depends on a number of factors. For example, if a company has a history of consistent cash flows, then it can probably sustain a much higher ratio.