Is it good to have a high or low debt to equity ratio?
Generally, a company wants to have as low of a debt to equity ratio as possible. However, there is also an argument that a company should have a healthy amount of debt because it gives the company capital to grow without having to sacrifice equity.
The visual below illustrates how changes in debt and equity impact the ratio. There is no ideal debt to equity ratio – it will depend on the industry and the company’s operating strategy!
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How to calculate the debt to equity ratio?
The debt-to-equity ratio is indicative of the degree of financial leverage used. It essentially is used to determine how much debt has been used to finance its assets value relative to the value of shareholders’ equity. The debt-to-equity ratio is used to indicate the degree of protection to creditors in the case of insolvency. For […]