 Debt Equity Ratio in QuickBooks 2014 - dummies

You can track your debt equity ratio in QuickBooks. 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

A Simple Balance Sheet
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.

There’s not really a guideline for a debt equity ratio. You simply compare your debt equity ratio with the debt equity ratios of similar-size firms in your industry. As is the case with the debt ratio, all other things being equal, the less long-term debt you carry, the better.