19.2.2.a. Debt-to-Equity Ratio Formula

Try these first

1. 1.

   What is the Debt-to-Equity Ratio if a company has total debt of $200,000 and shareholders' equity of$400,000?

   Hint

   Use the formula D/E = Total Debt ÷ Shareholders' Equity.

2. 2.

   True or False: A higher Debt-to-Equity Ratio indicates that a company is less risky.

   Hint

   Think about how debt impacts financial stability.

3. 3.

   What does the Debt-to-Equity Ratio indicate?

   • The total profit of a company
   • The company's market share
   • The proportion of debt relative to equity

   Hint

   Consider how debt and equity relate to financing.

4. 4.

   True or False: A low Debt-to-Equity Ratio is always bad.

   • True
   • False

   Hint

   Reflect on financial risk and stability factors.

5. 5.

   A startup has a Debt-to-Equity ratio of 3. Describe potential challenges they may face if they continue this path without changes.

   Hint

   Consider what high debt could mean for cash flow and investor relations.

6. 6.

   Given two companies, one with a D/E of 1.2 and the other 0.8, discuss which one might be more attractive to a conservative investor and why.

   Hint

   Think about how risk influences investment decisions.