Debt-equity ratio (also known as gearing or leverage) indicates the relationship between debt and equity financing used by a company. When comparing companies, it's important to note whether the ratio is based on book value or market value. If a company has issued preferred stock, depending on specific circumstances, it may be classified as either debt or equity.
$$Debt\textrm{-}to\textrm{-}equity\; ratio \mmlToken{mo}[linebreak="auto"]{=} \frac{Total\; debt}{Total\; equity}$$
Typically, only long-term debt is considered when calculating the debt-equity ratio.
Debt-to-Equity Ratio FAQ
What is the debt-to-equity ratio?
It compares debt financing to equity financing.
How do you calculate it?
Divide total debt by total equity.
