In this video, we discuss the Debt to Equity Ratio Formula in Detail, including some practical examples and calculation.
𝐃𝐞𝐛𝐭 𝐭𝐨 𝐄𝐪𝐮𝐢𝐭𝐲 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Debt to Equity Ratio Formula is considered as a long term solvency ratio. It is a comparison between the “external finance” and the “internal finance”.
Below is the formula of debt to equity ratio –
𝗗𝗲𝗯𝘁 𝘁𝗼 𝗘𝗾𝘂𝗶𝘁𝘆 𝗥𝗮𝘁𝗶𝗼 = 𝗧𝗼𝘁𝗮𝗹 𝗟𝗶𝗮𝗯𝗶𝗹𝗶𝘁𝗶𝗲𝘀 / 𝗦𝗵𝗮𝗿𝗲𝗵𝗼𝗹𝗱𝗲𝗿'𝘀 𝗘𝗾𝘂𝗶𝘁𝘆
𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐃𝐞𝐛𝐭 𝐭𝐨 𝐄𝐪𝐮𝐢𝐭𝐲 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Below is the information of Crispo Company
Common Stocks – 40,000 shares of $45 each
Current Liabilities – $69,000
Preferred Stocks – $160,000
Non-current Liabilities – $122,000
Here we need to find the debt equity ratio of Crispo Company.
As we have all the information, we just need to find out total liabilities and the total shareholder's equity.
Total liabilities = (Current liabilities + Non-current liabilities) = ($69,000 + $122,000) = $191,000
Total shareholders’ equity = Common stocks + Preferred stocks)
= [(40,000 * $45) + $160,000]
= [$1800,000 + $160,000]
= $1960,000.
The debt equity ratio formula is –
Debt equity ratio formula = Total liabilities / Total shareholders’ equity = $191,000 / $1960,000 = 0.10
So the debt to equity ratio of Crispo Company is 0.10.
To know more about the 𝐃𝐞𝐛𝐭 𝐭𝐨 𝐄𝐪𝐮𝐢𝐭𝐲 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- [ Ссылка ]
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