The debt-to-equity ratio is calculated by dividing a company's total liabilities by its shareholders' equity. This ratio is expressed as a percentage and reflects the company's liquidity, that is, how much of the company's debt compared to equity is used for assets.
Debt To Equity Ratio
The ratio reflects how much debt a corporation has, per unit of equity. As Equity constitutes the capital held by the shareholders while debt is borrowed from other parties, this ratio may reveal how well-positioned a firm is in paying its financial responsibilities by means of equity money.
In order to assess how effectively a corporation is achieving this requirement and how far it still has to go, an analysis of the ratio over time is necessary.
Assuming market value inputs, the change in share and debt prices indicates how volatile the firm stock is and if it is a suitable match for the investment portfolio.