debt-equity ratio

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Also known as debit/equity ratio or gearing ratio. This is the financial ratio that is obtained by dividing a business´s total debt (the sum of the long-term liabilities and the short-term liabilities) by its net shareholder´s equity.

This indicates the proportion of outside debt funding that a business has. On one hand, from this ratio, we can obtain the short-term ratio (which measures short-term debt or short-term liabilities divided by the net equity) and, on the other hand, the long-term debt ratio (by dividing the long-term debt or long-term liabilities by the net equity).

Normally companies are concerned about the bulk of their outside debt funding is in the long-run to be able to pay off that debt in a longer period of time. The financial autonomy ratio and the debt-to-equity ratio have a close relationship (they are the inverse of each other) so calculating either permits you to evaluate the financial risk of a business with respect to their financial structure.