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Definition

Debt to Equity measures the financial leverage a company has. It is calculated as

Debt to Equity
= Total Debt / Total Equity
= (Current Portion of Long-Term Debt + Long-Term Debt) / Total Equity

Formula

Debt to Equity = (Current Portion of Long-Term Debt + Long-Term Debt) / Total Equity

Explanation

In the calculation of Debt to Equity, we use the total of Current Portion of Long-Term Debt and Long-Term Debt divided by Total Equity. In some calculations, Total Liabilities is used to for calculation.

Beaware

Because a company can increase its Return on Equity by having more financial leverage, it is important to watch the leverage ratio when investing in high Return on Equity companies.

Related Terms

Current Portion of Long-Term Debt, Long-Term Debt, Total Equity, Return on Equity

Financial Dictionary

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