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 of the following best describes how the debt to equity ratio is calculated?

Total shareholders' equity divided by total liabilities

Total liabilities divided by common stock

Total assets divided by total liabilities

Total liabilities divided by total shareholders' equity

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Verified step by step guidance

Understand the concept of the debt to equity ratio: It is a financial metric used to evaluate a company's financial leverage by comparing its total liabilities to its total shareholders' equity.

Identify the formula for the debt to equity ratio: The formula is \( \text{Debt to Equity Ratio} = \frac{\text{Total Liabilities}}{\text{Total Shareholders' Equity}} \). This formula shows how much debt a company has for every dollar of equity.

Clarify the components: Total liabilities include all debts and obligations the company owes, while total shareholders' equity represents the owners' residual interest in the company after liabilities are subtracted from assets.

Compare the options provided: Analyze each option to determine which matches the formula. The correct option is 'Total liabilities divided by total shareholders' equity,' as it aligns with the formula.

Apply the formula in practice: To calculate the debt to equity ratio, divide the total liabilities by the total shareholders' equity. This ratio helps assess the company's financial stability and risk level.