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Debt/Equity Ratio
What does it mean?
A measure of a company's financial leverage calculated by dividing long-term debt by shareholders equity. It indicates what proportion of equity and debt the company is using to finance its assets.
Note: Sometimes investors only use interest bearing long-term debt instead of total liabilities.
In Other Words...
A higher debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.
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Related Terms
Acid-test Ratio | Leverage | Shareholders Equity
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