The Debt to Equity Ratio illustrates the proportion of debt to equity in the overall capital of the firm, revealing the present capital structure and allowing internal and external stakeholders to know how well it meets the planned capital structure objectives.


Debt To Equity Ratio




Limitation Of Debt To Equity Ratio  

Multiple Variants 

As previously stated, the ratio has various changes, making comparisons difficult without modifying the ratios of both organisations to be on the same page.

Volatile Inputs 

For firms with variable share or debt prices, the market value ratio may not make sense and may need smoothing, which is an approximated method and hence not extremely reliable.

Industry Specific 

Those Industries which demand a big investment in fixed assets, often have a greater debt to equity ratio since initially, the quantity required could be too huge for a business to raise via stock.