#1. What is D/E Ratio?
- Financial metric showing debt vs. equity in company financing.
#2. Formula:
- D/E Ratio = Total Debt / Shareholders' Equity
#3. Total Debt:
- Includes short/long-term debts - loans, bonds, etc.
#4. Shareholders' Equity:
- Residual interest after deducting liabilities.
#5. Interpretation:
- High D/E ratio = higher financial risk.
- Low D/E ratio = conservative, lower risk.
#6. Risk and Return:
- High D/E may yield higher returns but comes with financial risk.
- Low D/E indicates stability but potential lower returns.
#7. Industry Benchmarking:
- Compare D/E with industry averages.
#8. Changes Over Time:
- Monitor trends; sudden increases may signal financial shifts.
#9. Impact on Valuation:
- Balanced D/E viewed positively by investors.
#10. Red Flags:
- Excessive D/E raises concerns.
- Rapid increases without earnings growth = caution.
#11. Interest Coverage Ratio:
- Assess ability to cover interest payments alongside D/E.
#12. Regulatory and Economic Factors:
- Changes in rates, economic conditions affect D/E impact. Please FOLLOW US, SUBSCRIBE and SHARE this article with your friends. Learn and Grow with us.
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FunTech Team
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