Debt-Equity Ratio Flashcards
How is D/E ratio calculated?
Long & short-term debt / book value of shareholders equity
Long & short-term debt / book value of shareholders equity
How is D/E ratio calculated?
What is a D/E ratio of 0.23?
A modest ratio acceptable under most circumstances
A modest ratio acceptable under most circumstances
What is a D/E ratio of 0.23?
What is D/E ratio used for?
Helps investors determine how a company finances its assets
Helps investors determine how a company finances its assets
What is D/E ratio used for?
What does D/E ratio show?
Proportion of equity to debt a company is using to finance its assets
Proportion of equity to debt a company is using to finance its assets
What does D/E ratio show?
What does a low D/E ratio represent?
The company uses a lower amount of debt for financing vs shareholder equity
The company uses a lower amount of debt for financing vs shareholder equity
What does a low D/E ratio represent?
What does a high D/E ratio represent?
The company derives more of its financing from debt relative to equity
The company derives more of its financing from debt relative to equity
What does a high D/E ratio represent?
Problem with too much debt?
If company doesn’t have earnings/cash flow to meet its debt obligations
If company doesn’t have earnings/cash flow to meet its debt obligations
Problem with too much debt?
Which industries have higher D/E ratios?
Industries with a lot of fixed assets, auto/construction industries
