Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Debt to Equity Ratio

Financial Accounting

14. Financial Statement Analysis

Ratios: Debt to Equity Ratio

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Multiple Choice

Which financial ratio is calculated by dividing a company's total debt by its total equity?

Current Ratio

Debt to Equity Ratio

Gross Profit Margin

Return on Equity

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Verified step by step guidance

Step 1: Understand the concept of financial ratios. Financial ratios are used to evaluate a company's financial performance and position. The Debt to Equity Ratio specifically measures the proportion of debt financing relative to equity financing.

Step 2: Identify the formula for the Debt to Equity Ratio. The formula is:

\frac{Total Debt}{Total Equity}

. This ratio helps assess the financial leverage of a company.

Step 3: Compare the given options. The Current Ratio measures liquidity, Gross Profit Margin measures profitability, and Return on Equity measures the return generated on shareholders' equity. None of these options relate to the proportion of debt to equity.

Step 4: Recognize that the Debt to Equity Ratio is the correct answer because it directly involves dividing total debt by total equity, as stated in the problem.

Step 5: Apply this understanding to similar problems by identifying the relevant formula and ensuring the calculation aligns with the financial concept being tested.