Debt to Equity

SeekingAlpha  Sep 25  Comment 
By whatstock2investin: PulteGroup Inc. (NYSE:PHM) is a steal these days. From a negative net income in 2010 to a dramatic turn around in 2012 and 2013. Net Income is growing, debts are paid down and revenue levels are steadily growing. Market...
Benzinga  Sep 17  Comment 
RiT Technologies (Nasdaq: RITT) today announced that it has entered into a Share Purchase Agreement with Stins Coman Inc., its principal shareholder. Under the terms of the agreement, Stins Coman will convert an outstanding $5 million loan (plus...
DailyFinance  Sep 9  Comment 
Regulatory News: Financial targets New (over next five years) Old (over business cycle) Organic sales growth 6 percentage points p.a. above market* 7% Operating margin ...
SeekingAlpha  Sep 1  Comment 
By Joseph Harry: Many times, pure numbers or financial metrics are taken at face value without a second thought. While useful and for the most part relatively accurate, sometimes financially-strong companies can get a bad rap from some investors...
SeekingAlpha  Jul 11  Comment 
By Kapitall: If you haven't heard, dividend stocks are all the rage. Investors want yields, and dividend stocks currently offer the best ones. However, high yields aren't the only factors investors should take into consideration when selecting...
DailyFinance  Apr 23  Comment 
SURREY, BRITISH COLUMBIA -- (Marketwired) -- 04/23/14 -- GLOBAL HEMP GROUP INC. ("Global Hemp Group" or the "Company") (CSE: GHG)(FRANKFURT: GHG) Global Hemp Group Inc. announced today a new cooperation with African Frontier Partners for...
The Economic Times  Jan 9  Comment 
MBL is on a strong wicket: its balance sheet, with one of the lowest long-term debt to equity ratio of 1.5 gives it an edge.
Wall Street Journal  Dec 20  Comment 
Bumi Resources' attempt to reduce its debt burden stalls, as it fails to get enough shareholders to vote for a restructuring proposal; extraordinary meeting scheduled for Jan. 10.
SeekingAlpha  Dec 16  Comment 
By Muhammad Bazil: Times are tough financially all around and no company has gotten through without feeling the effects, but some companies are doing worse than others. Nokia (NOK) is one company that has definitely had a difficult time staying...
The Globe and Mail  Aug 22  Comment 
We screen for Canadian stocks with price-to-earnings ratios of less than 10 and debt-to-equity ratios of less than 50 per cent


The debt to equity ratio is a measure of the company's total long-term debt divided by shareholder's equity

The debt to equity ratio gives the proportion of a company (or person's) assets that are financed by debt versus equity. It is a common measure of the long-term viability of a company's business and, along with current ratio, a measure of its liquidity, or its ability to cover its expenses. As a result, debt to equity calculations often only include long-term debt rather than a company's total liabilities.

A high debt to equity ratio implies that the company has been aggressively financing its activities through debt and therefore must pay interest on this financing. If the company's assets generate a greater return than the interest payments, then the company can generate greater earnings than it would without the debt. If not, however, and the company's debt outweighs the return from its assets, then the debt cost may outweigh the return on assets. Over the long-term, this would lead to bankruptcy . Investors should take this into consideration when investing in a company with a high debt to equity ratio, especially in times of rising interest rates.

Debt to equity ratios vary across industries. Capital intensive industries such as airplane manufacturers tend to have higher debt to equity ratios -- typically greater than 2. Less capital intensive industries, such as a software company, can have lower debt to equity ratios of under .5.


  • To start, Widgets Inc. has long term debt of $1 million and shareholder's equity of $1 million for a debt to equity ratio of 1, which is fairly standard in the widget industry.
  • To increase production, Widgets Inc. enters into a loan of $2 million in order to finance a new widget manufacturing facility, which increases its debt to equity ratio to 3 (=[$1 million previous debt + $2 million in new debt]/[$1 million in equity]) . The company pays 5% interest on the loan while its new facilities generate a 7% return. In this case, a higher debt to equity ratio allows the company to increase earnings beyond what would have been possible otherwise. The high debt to equity ratio is worthwhile for the company.
  • One year later, however, interest rates on the loan rise to 9%. Now, the company is paying more for its debt than the 7% it is generating out of its new facilities. The company's high debt to equity ratio and increasing debt payments now put the company at risk of going bankrupt.
Please install Flash Player to view this chart.
Please install Flash Player to view this chart.
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki