Debt to Equity ratio is calculated as

• A. Total Debt / Total Equity
• B. Total Equity / Total Debt
• C. Net Income / Total Equity
• D. Total Assets / Total Equity

Answer: (A)

Debt-to-equity ratio measures financial leverage by comparing what a company owes to what its owners have invested. It is calculated by dividing total debt by total equity. Total debt includes all interest-bearing liabilities (short-term and long-term), while total equity covers contributed capital, retained earnings, and other equity components. This ratio shows how much debt is used to finance assets relative to shareholder funding; a higher value means greater leverage and potential risk, since debt must be serviced regardless of earnings. Using equity in the numerator would invert the measure, and using net income or total assets would not isolate the debt burden relative to owners’ claims.