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Horngren'S Financial And Managerial Accounting
Found in: Page 655

Short Answer

What does the debt to equity ratio show, and how is it calculated?

Debt to equity ratio measure the ability to pay debt by using the equity. It is the ratio of debt and equity.

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Step by Step Solution

Step 1: Definition of debt

Debt is the amount that a company owes. Debt includes notes payable, loans, etc.

Step 2: Debt-equity ratio

The debt-equity ratio is a ratio that shows the relationship between total liabilities and total equity. The debt-equity ratio is calculated by dividing total liabilities by total equity.

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