Debt-to-Equity Ratio is calculated as:
ATotal Debt / Total Assets
BLong-term Debt / Total Assets
CTotal Debt / Shareholders' Equity
DShareholders' Equity / Total Debt
Answer & Solution
Correct answer: C. Total Debt / Shareholders' Equity
1. D/E Ratio = Total Outside Liabilities (or Total Debt) / Shareholders' Equity.
2. Sometimes only interest-bearing long-term debt is used in the numerator.
3. Indicates the firm's financial leverage.
_Source: ICAI BoS CA Inter Paper 6A, Ch 3 "Financial Analysis and Planning — Ratio Analysis", §3.2.1(c)_