Question
From the following details, calculate Debt Equity ratio:
Long term loans Rs. 1,000,000 Current Liabilities Rs. 200,000 Share capital Rs.800,000 Net Income Rs.80,000 Reserve and Surplus Rs.200,000Solution
Debt/Equity Ratio is a debt ratio used to measure a company's financial leverage, calculated by dividing a company's total liabilities by its stockholders' equity. The D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders' equity Debt/Equity ratio = (Long Term Borrowing)/(Share Capital + Reserve and Surplus)= 1,000,000/(800,000+200,000)= 1:1 Net income and current liabilities have nothing to do with Debt Equity ratio.
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