How to Calculate Debt to Equity Ratio

Step-by-Step Guide

1. 1

   Step 1: Access the company's publicly available financial data.

   Companies that are publicly traded are required to make their financial information available to the general public.
   
   There are numerous resources online where you can access the financial statements of publicly traded companies.
   
   If you have a brokerage account, that's the best place to start.
   
   Almost all online brokerage services allow you to access a company's financials by simply searching for the company based on its stock symbol.
   
   If you don't have a brokerage account, you can still access a company's financials online at Yahoo! Finance, or on any investing website, such as MarketWatch, Morningstar, or MSN Money.You can search by industry, company name, or stock symbol to find basic financial information on companies.
2. 2

   Step 2: Determine the amount of long-term debt the company owes.

   This amount may be in the form of bonds, loans and lines of credit.
   
   You can find the company's debt on its balance sheet.The amount of debt is easy to find.
   
   It's listed under "Liabilities." The total amount of debt is the same as the company's total liabilities.
   
   You don't need to worry about individual line items within the liabilities section. , As with liabilities, this information is located on the balance sheet.
   
   The company's equity is usually located on the bottom of the balance sheet.
   
   It's called "Owner's Equity" or "Shareholder's Equity." You can ignore the specific line items within the equity section.
   
   All you need is the total liabilities. , For example, a company with $1 million in liabilities and $2 million in equity would have a ratio of 1:2.
   
   This would indicate $1 of creditor investment for every $2 of shareholder investment. , For example, a company with $1 million in liabilities and $2 million in equity would have a ratio of 50 percent.
   
   This would indicate $1 of creditor investment for every $2 of shareholder investment. , You can compare the debt-to-equity ratio for the company you're researching to that of other companies you're considering.
   
   In general, healthy companies have a debt-to-equity ratio close to 1:1, or 100 percent.
   
   When there is a 1:1 ratio, it means that creditors and investors have an equal stake in the business assets.
   
   A high debt-to-equity-ratio is usually considered more unstable than a low one because it indicates that investors have been unwilling to help fund the business.
   
   This may mean that the company was forced to take on additional debt, which it may have trouble paying back.
   
   Keep in mind that each industry has different debt-to-equity ratio benchmarks.
   
   This is because some industries use more debt financing than others.
3. 3

   Step 3: Determine the amount of equity a company has.

4. 4

   Step 4: Express debt-to-equity as a ratio by reducing the two values to their lowest common denominator.

5. 5

   Step 5: Express debt-to-equity as a percentage by dividing total debt by total equity and multiplying by 100.

6. 6

   Step 6: Compare debt-to-equity ratios.

Detailed Guide

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