What is the formula for calculating the debt-to-equity ratio?

The debt-to-equity ratio is a financial metric that indicates the relative proportion of a company's debt to its equity. It is essential for assessing a firm's financial leverage and understanding how much debt is being used to finance operations compared to shareholder equity.

The correct calculation involves dividing total debt by total equity. This ratio provides insights into the financial structure of a company, helping investors understand how much risk is associated with its financing. A higher ratio indicates that a company relies more on debt to finance its assets, signifying potential risk, especially in fluctuating economic conditions.

Understanding this ratio is crucial for stakeholders, including investors and analysts, as it highlights the balance between debt financing and owners' investments, thereby reflecting the company's financial stability and capital structure strategy.