How to Calculate a Debt to Equity Ratio
When a company needs additional funds, such as for an expansion, it can finance its activities by issuing stocks (shares of the company for the public to buy) or by taking out loans. The total value of the company's stock is referred to as equity, while the loans are referred to as debt. A debt-to-equity ratio of 1 or more means the company relies heavily on loans, while a smaller ratio means the company has less debt relative to stockholder equity.
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Instructions
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Look up the company's long term debt, short-term debt and total shareholder equity in its annual report.
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Add the long-term debt to the short-term debt. For example, if the company has $50,000 in short-term debt and $200,000 in long-term debt, it would have $250,000 in total debt.
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Divide the company's total debt by the company's stockholder equity to find the debt-to-equity ratio. In this example, if the company had $1 million in stockholder equity, you would divide $250,000 by $1 million to get a ratio of 0.25.
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Comments
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u opened ma eyes. I failed my last test coz I failed to calculate quick ratio and debt to equity ratio.
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Lovely... Is all this applicable in Project Financing?
