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Finance: What is the Debt to Equity Ratio? 18 Views


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Description:

What is the Debt to Equity Ratio? The debt to equity ratio divides liabilities by shareholder’s equity. It can be pretty helpful when determining if a company is a good investment. If the ratio is high, the company is probably a pretty big risk, because they are taking on a lot of debt to support growth.

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Transcript

00:00

Finance allah shmoop shmoop What is the debt to equity

00:05

ratio or duras It is named in insane asylums all

00:10

over the world Well it's a balance sheet computation that

00:13

tries very roughly to measure how efficient a company is

00:17

using its precious capital resource is the numerator comprises long

00:21

term liabilities on ly For most companies with debt the

00:25

amount of long term debt vastly outweighs the short term

00:29

So they ignore the short The denominator is the company's

00:32

shareholder's equity Easy You know that computation right ale and

00:36

think that's the capital invested in the business that's what

00:40

Isthe so what does it mean to have a high

00:42

durer Well if shmoop a loops llc a producer of

00:46

the most delicious cereal on the planet has four billion

00:50

dollars of debt And on lee fourteen dollars of equity

00:53

will you don't have to be a wall street genius

00:55

to get that that's bad right Tons of debt almost

00:58

no equity It means that loans comprise some ninety nine

01:02

percent of the company and well that it is essentially

01:05

owned by the bank and other creditors not by the

01:08

equity stake holders And you want steak Flip things around

01:11

Your cisco networks with a billion dollars of debt and

01:14

like fifty billion dollars of equity Well the shareholders clearly

01:18

owned this company The size of the equity dwarfs the

01:21

size of the debt Got it Bottom line High ratio

01:23

bad low ratio Good at least if you're one of

01:27

the owner investors But if you're a banker with a

01:30

hankering to own a cereal company well then today you 00:01:33.338 --> [endTime] might be able to just take one over girls

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