Debt and Bankruptcy
Investing and Financial Markets

What is ideal debt to equity ratio?

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2009-11-27 03:33:51

  • Debt-to-Equity ratio compares the Total Liabilities to the

    Total Equity of the company. It paints a useful picture of the

    company's liability position and is frequently used.

    Debt-to-Equity Ratio = Total Liabilities / Shareholder's


  • Both the Total Liabilities and Shareholder's Equity are found

    on the Balance Sheet.

  • When this number is less than 1, it indicates that the

    company's creditors have less money in the company than its equity

    holders. That, typically, would be an ideal threshold

    to be below.

  • It's common for large, well-established companies to have

    Debt-to-Equity ratios exceeding 1. For instance, GE carries a

    Debt-to-Equity ratio of around 4.4 (440%), and IBM around


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