Debt Equity Ratio in QuickBooks 2013 - dummies

# Debt Equity Ratio in QuickBooks 2013

The debt equity ratio is one of the leverage ratios you can use in QuickBooks 2013. 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`
 Assets Cash \$25,000 Inventory 25,000 Current assets \$50,000 Fixed assets (net) 270,000 Total assets \$320,000 Liabilities Accounts payable \$20,000 Loan payable 100,000 Owner’s equity 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:

`\$100,000/\$200,000`

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-size 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.