The debt to equity ratio or debt-equity ratio is calculated by dividing a corporation’s total liabilities by the total amount of stockholders’ equity: (Liabilities/Stockholders’ Equity):1.

A corporation with $1,200,000 of liabilities and $2,000,000 of stockholders’ equity will have a debt to equity ratio of 0.6:1. A corporation with total liabilities of $1,200,000 and stockholders’ equity of $400,000 will have a debt to equity ratio of 3:1.

Generally, the higher the ratio of debt to equity, the greater is the risk for the corporation’s creditors and its prospective creditors.

Download our Debt to Equity Ratio Form and Template.

Learn more about Financial Ratios.

Take our Financial Ratios Exam.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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