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Finance Formulas / July 18, 2018 / Rory Wise

DebtEquity (DE) Ratio, calculated by dividing a company’s total liabilities by its stockholders' equity, is a debt ratio used to measure a company's financial leverage. The DE ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.

According to DuPont analysis, there are three major financial metrics drive return on equity (ROE): operating efficiency, asset use efficiency and financial leverage. Operating efficiency is represented by net profit margin or net income divided by average shareholders' equity. Asset use efficiency is measured by total asset turnover or the asset turnover ratio. Finally, financial leverage is analyzed through observation of changes in the equity multiplier.

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