Debt-Equty Ratio

There are too many perspectives in this regard.

Debt-Equity ratio explains the financial strength of the organisation, as given below :-

If Debt-Equity ratio is too high, means co. is employed with too much debt that is to be paid on maturity and also financial risk is too high as co. is charged with fixed burden in the form of INTEREST ON DEBENTURES, LOANS etc.

If it is too low, means equity is too high, the req. of investors would be too high in context of dividend to be paid and also capital gains on sale of share of co.

So, Debt-Equity reatio needs to be balanced. The ideal ratio for this is 1:1.

Thanks a lot! Sir, It is quite satisfactory & informative!

welcome...... always.

sir, I think this calculation good at the time of new company. when a company starts to earn profits and accumulate huge reserve, whether this ratio has any significance

nice one