Debt to Equity Ratio
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- เผยแพร่เมื่อ 14 ต.ค. 2024
- This video demonstrates how to calculate the Debt to Equity Ratio. An example is provided to illustrate how the Debt to Equity Ratio can be used to compare the leverage of two firms.
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Thanks for putting up these videos so succinctly. I appreciate the simple explanations too.
Video Summary :
Is a measure of Firm's "leverage":
DE Ratio = D/E ( derived from balance sheet).
We are not using the market value of equity, but the book value.
Firm ABC Utility company: D : 22k E: 5K D/E = 22/5 = 4.4
Firm Flowers store: D 24K/Book Equity 16k D/E : 24/16 = 1.5
So, Utility ABC company is more leveraged than Flowers company.
A good debt to equity ratio is around 1 to 1.5. However, the ideal debt to equity ratio will vary depending on the industry because some industries use more debt financing than others. Capital-intensive industries like the financial and manufacturing industries often have higher ratios that can be greater than 2.
Leverage is a double edged sword. It can help a firm grow faster but it can also lead to their downfall :)
could you please elaborate?
@@Shaiifalii If you have $10,000 of cash and $90,000 of leverage for $100,000 total, then every time you get a 10% return on the $100,000 you get $10,000, which is double your personal investment of $10,000. This is a 100% return for you because you just give the $90,000 back to the lender. However, if you experience a 10% loss on the $100,000, that's a $10,000 loss, which is a 100% loss for your personal investment of $10,000.
More leveraged? The heck does that mean
Jake Ottati It simply means that Company A has to borrow more money (i.e. leverage a bank to give them a loan) because they have less equity to finance their business by themselves
Basically, utility company is borrowing more debts from the bank, and is riskier than the flower company.
「あなたのコンテンツはとても感動的です」、
great video, as always, but you can't close the video just saying "more leverage". As you can see from the comment here below, people have the same question.
what does it mean ,if there is a more leveraged in the company ? thanks
It means that there is more debt
Does the equity portion include preferred stock?
Yep it’s included
Does this also apply times (x) 100?
0:50 We aren't using market value, we're going by book value
"debt/equity ratio for financing" is it the same or something else?
what does it mean if equity is higher than liabilities?
thank you sir !
this video is useless , it is pure math . you should talk about what debt to equity means in a company and why it is important to consider it in a fundamental analysis
The title of the video would said that if he was going to do that, the title states that he is just doing the ratio
equity is to be high or low?
That is the question, other companies uses a mix and different strategies.
More debt meaning you would have to prioritise those payments. Thus, if you can't afford to pay back (default) they will have claim on your assets.
Equity: Having too much debt is bad for your company and your shareholders, if the company fails, you and the shareholders will lose their wealth. Having too much equity is bad because you will lose % ownership of the company.
2:1 is to be considered as good
But you are 5 years ahead of me so I think you know much more now
Is 66% a good ratio?
No, you're looking for anything around a ratio of 0.667
@@macavalli2619 what.. 0.667 is 66.7%...
@Kew The II 66.6 to be more precise 🤟 😈👌