Leverage Ratios indicate the level of debt incurred by your business against several over accounts on the Financial Statements. This explains how the business’s assets and operations are financed.
Debt to Equity compares whether a company’s capital structure utilizes more debt or equity in its financing. This includes both short term and long term debt and other obligations, such as leases.
- Debt to Equity Ratio = (Short Term Debt + Long Term Debt + Other Fixed Payments ) / Shareholder’s Equity
Equity determines what portion of the business could be claimed by the shareholder in a liquidation event.
- Equity Ratio = Shareholder’s Equity / Total Assets
Debt is the percentage of assets being financed with debt. The higher the ratio the greater the degree of risk. This is generally used by lenders.
- Debt Ratio = (Short Term + Longer Term Debt) / Total Assets