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What does the debt-to-equity ratio measure?
What does the debt-to-equity ratio measure?
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What does the debt-to-equity ratio measure?
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The debt-to-equity ratio measures a company's financial leverage by comparing its total liabilities to its shareholders' equity.
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Q: What does the debt-to-equity ratio measure?
Solution:
The debt-to-equity ratio measures a company's financial leverage by comparing its total liabilities to its shareholders' equity.
Steps: 5
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Step 1: Understand what 'debt' means. Debt refers to the money a company owes to others, which is called liabilities.
Step 2: Understand what 'equity' means. Equity refers to the money that belongs to the shareholders, which is their ownership in the company.
Step 3: Know that the debt-to-equity ratio is a formula. It is calculated by dividing total liabilities (debt) by total equity.
Step 4: Realize that this ratio shows how much debt a company has for every dollar of equity. A higher ratio means more debt compared to equity.
Step 5: Understand that this ratio helps investors see how risky a company is. If a company has a lot of debt, it may be riskier.
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