D/E :-Debt to Equity Ratio
Sunday, 15 May 2022
Hey Guys...
Today we are going to discuss a significant term that is known as D/E ratio.
Which means "Debt to equity ratio". We suggest you to read the entire article so that you wouldn't have any doubt left about D/E Ratio and have no longer need to ask about D/E ratio.
So Let's Start:
POINTS📍 TO BE COVERED:-
- What is the D/E ratio
- What is its Formula
- How to understand a Stock
- Dependency on D/E Ratio
- WHAT IS THE D/E RATIO:-
It is known as DEBT TO EQUITY RATIO. It is used to evaluate a company's financial leverage. From this financial aspect, we can evaluate how much debt is on the company and reach a decision on whether we have to invest or not in this company.
- FORMULA:-
We can find the D/E (Debt to Equity Ratio) of a company by dividing the total liabilities by its total shareholder's equity.
The formula is as follows:-
D/E = TOTAL LIABILITIES/TOTAL SHAREHOLDER'S EQUITY
- UNDERSTAND THE D/E RATIO OF A STOCK:-
We must have to know that a higher D/E ratio means higher debt on the company and it means that the stock is at high risk and we must not have to invest in it.
It is safe when the company's earnings are more than earlier after taking leverage but if the company's earnings are not well as after taking leverage then it is not safe for the company and investors
We can evaluate the D/E ratio of any company by comparing it to the other stock's D/E.
We must understand that if its competitor's D/E is high then it is a better option. We can understand it by taking an example of it as follows:-
Let's take the example of TATA MOTORS AND HONEYWELL AUTOMATION:-
Tata Motors's D/E Ratio=3.33
HONEYWELL AUTOMATION'S D/E RATIO =0.02
Then we can conclude by the D/E ratio that HONEYWELL AUTOMATION is a better option than TATA MOTORS. We can't mean to say that Tata motors is a bad stock but in comparison to Honeywell Automation that Honeywell is a better option by observing only the D/E Ratio.