Debt to Equity ratio is calculated as the total outstanding debt of the company divided by the shareholders equity of the company for the most recent financial year. To understand it better, please read about long term debt to equity ratio above. Total debt is the sum of all kinds of loan amount raised by the company regardless of repayment schedule.

This ratio helps understand the extent to which debt capital is used to fund projects as well as to meet day to day working expenses of the company. Higher the debt capital, higher the interest cost leading to lower profits. Hence companies with lower debt to equity ratio are more preferable. Debt to equity ratio of companies operating in the same sector can be compared with each other.