In short
The debt-to-equity ratio is total liabilities divided by total stockholders' equity. It measures how much a company relies on creditors' money compared with owners' money.
Key takeaways
- A higher ratio means more financial leverage and risk.
- The debt ratio (liabilities ÷ total assets) is a related measure.
- Lenders often set a maximum ratio as a loan covenant.
Where it's tested
BAR: Financial Statement Analysis — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company's times interest earned ratio declines sharply while its debt-to-equity ratio rises. This most likely indicates: