Debt to Equity Ratio Law and Legal Definition

Debt to equity ratio is a measure of how much of a company’s assets is funded through borrowing or financing and how much through equity. In short, it measures a company’s ability to borrow and repay money. It is used as a standard for judging a company's financial standing. The debt to equity ratio is calculated by dividing the total liabilities by the shareholder’s equity. The answer got is the percentage of the company that is indebted. Investors rely on debt/equity ratio primarily to determine the amount of risk involved in either buying equity in the company through stock, or purchasing bonds issued by the company. Generally, any company that has a debt to equity ratio of over 40 to 50% should be looked at more carefully to make sure there are no liquidity problems.