Question

What is the debt-equity ratio?

Options

• \[\frac{\mathrm{Equity}}{\mathrm{Debt}}\]

• \[\frac{\mathrm{Debt}}{\mathrm{Equity}}\]

• \[\frac{\mathrm{EBIT}}{\text{Total Investment}}\times100\]

• \[\frac{\mathrm{Debt}}{\mathrm{Debt}+\mathrm{Equity}}\]

Answer 1

The debt-equity ratio is \[\frac{\mathrm{Debt}}{\mathrm{Equity}}\]. It expresses debt relative to equity, rather than relative to total capital.