Debt Equity Ratio in QuickBooks 2012
The debt equity ratio is one of the leverage ratios you can use in QuickBooks 2012. A debt equity ratio compares a firm’s long-term debt with a stockholder’s equity or owner’s equity. Essentially, the debt equity ratio expresses a firm’s long-term debt as a percentage of its owner’s equity.
Stockholder’s equity is synonymous with owner’s equity and, in the case of a sole proprietorship, with a sole proprietor’s capital account.
The following is the formula used to calculate a debt equity ratio:
long-term debt/stockholder’s equity
|Fixed assets (net)||270,000|
|S. Nelson, capital||200,000|
|Total liabilities and owner’s equity||$320,000|
By using the example balance sheet shown, you can calculate the debt equity ratio by using this formula:
This formula returns the debt equity ratio of 0.5. Therefore, this firm’s long-term debt equals 0.5, or 50 percent of its owner’s equity.
You simply compare your debt equity ratio with the debt equity ratios of other, similar-sized firms in your industry. As is the case with the debt ratio, the less long-term debt you carry, the better — all other things being equal.