Debt to equity ratio is calulated as follows:- total liabilities / shareholders' equity .This ratio indicates the amount of liabilities the business has for every dollar of shareholders' equity. This ratio is a good indicator of a business's capacity to repay its creditors, it is considered very important by most term lenders. Debt ratios measure financial solvency and can give a glimpse into
. capital structure. It's easy to find out how much debt is reported on the balance sheet. Capital intensive industries prefer to have a 2:1 ratio, where as less capital intensive industries like software prefer to have a 5:1 ratio.
