Debt-equity ratio is a measure of leverage,
indicating proportion of company's total capital contributed by secured and
unsecured debt. A high debt-equity ratio, generally 2:1 and above, is not
considered favourable for companies. Also, this ratio varies from industry to
industry.
Debt-equity ratio = Secured + Unsecured debt
Shareholders Funds
E.g.: As on 31st March 2010, company had secured loan of Rs. 70 crore, unsecured loan of Rs. 30 crore, shareholders funds (equity and reserves) of Rs. 200 crore.
Debt-equity ratio = 70 + 30
200
Debt-equity ratio = 0.5:1
Debt-equity ratio = Secured + Unsecured debt
Shareholders Funds
E.g.: As on 31st March 2010, company had secured loan of Rs. 70 crore, unsecured loan of Rs. 30 crore, shareholders funds (equity and reserves) of Rs. 200 crore.
Debt-equity ratio = 70 + 30
200
Debt-equity ratio = 0.5:1
