Practicing Success
In debt equity ratio, debt refers to : |
Short Term Debts Long Term Debts Total Debts Debentures and Current Liabilities |
Long Term Debts |
Debt-Equity Ratio measures the relationship between long-term debt and equity. If debt component of the total long-term funds employed is small, outsiders feel more secure. From security point of view, capital structure with less debt and more equity is considered favourable as it reduces the chances of bankruptcy. Normally, it is considered to be safe if debt equity ratio is 2 : 1. However, it may vary from industry to industry. Debt-Equity Ratio = Long term Debts / Shareholders’ Funds. |