Debt to Equity Ratio
A ratio arrived at by dividing the total liabilities of a company by the dollar value of total assets minus total liabilities. A high ratio indicates that the company is heavily in debt relative to the value of its assets. It’s regarded as an important metric for assessing the financial stability of a company and consequently how good of an investment it might be.
Company A has total liabilities of $3,000, and total assets of $15,000. It’s debt to equity ratio is therefore 3,000 ÷ (15,000 – 3,000), or 0.25. This is a low debt to equity ratio, so the company might be seen as a safe investment.