What is debt/equity ratio?

Debt/equity ratio is a measure of the share of equity versus debt, which is used to finance different parts of the company's operation. It is used as a standard for assessing the financial position of the company. The debt/equity ratio is calculated by the fact that the overall obligations and the division of the shareholders are divided. For example, obligations usually include only long -term debt, such as debt financed by bonds or other forms of commercial loans. Another example is preferred shares. In determining the debt/equity ratio, it may be considered as an asset or obligation. In many cases, because it often changes, it may not provide a truly accurate description of liabilities for society. Therefore, whether they are used, it is a purely subjective decision of the company. While one company may look better than another, it can be based on what is mentioned as debt and capital. Knowing that is the key to a truly understanding of how one society compared to yinou.

Investors will use the debt/equity ratio of equity primarily to determine the amount of risk in the Company of the purchase of equity through shares or by purchasing bonds issued by companies. If the debt/equity ratio detects a higher debt amount compared to its own capital, investors can consider the company a greater risk. Therefore, they may require a higher interest rate than they are tempted to buy bonds or may not be willing to invest in shares.

Companies that can go to the bond market or keep stock prices above a certain price to carefully monitor their debt/equity ratio. Sometimes companies can be able to repay some long -term debt obligations in an effort to improve this ratio. This could help the company's long -term situation.

One way to achieve this would be the liquidation of assets. While the liquidation of someEril assets for repayment of debt could be a zero amount, because debt and their own capital decrease, it can also be beneficial. The company would benefit, for example, that it has no debt interest payments, which could allow it to build capital faster. However, a fundamental change in the debt/capital ratio is something that is not done within a few weeks.