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Decoding Financial Fortitude: Unraveling the Significance of Debt Equity Ratio in Stock Analysis

#1. What is D/E Ratio?

- Financial metric showing debt vs. equity in company financing.

#2. Formula:

- D/E Ratio = Total Debt / Shareholders' Equity

#3. Total Debt:

- Includes short/long-term debts - loans, bonds, etc.

#4. Shareholders' Equity:

- Residual interest after deducting liabilities.

#5. Interpretation:

- High D/E ratio = higher financial risk.

- Low D/E ratio = conservative, lower risk.

#6. Risk and Return:

- High D/E may yield higher returns but comes with financial risk.

- Low D/E indicates stability but potential lower returns.

#7. Industry Benchmarking:

- Compare D/E with industry averages.

#8. Changes Over Time:

- Monitor trends; sudden increases may signal financial shifts.

#9. Impact on Valuation:

- Balanced D/E viewed positively by investors.

#10. Red Flags:

- Excessive D/E raises concerns.

- Rapid increases without earnings growth = caution.

#11. Interest Coverage Ratio:

- Assess ability to cover interest payments alongside D/E.

#12. Regulatory and Economic Factors:

- Changes in rates, economic conditions affect D/E impact. Please FOLLOW US, SUBSCRIBE and SHARE this article with your friends. Learn and Grow with us.


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FunTech Team

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