Ratio of total debt to equity in the U.S. 2012-2020

In the first quarter of 2020, the debt to equity ratio in the United States amounted to 94.38 percent.

Debt to equity ratio explained

The debt to equity financial ratio indicates the relationship between shareholders' equity and debt used to finance the assets of a company. In order to make the calculation the data of the two required components are taken from the firm’s balance sheet. If the company is a publicly traded company then it is possible to make the calculation by taking the market value for both.

The composition of debt and equity of an enterprise is much debated as is the influence that it is able to exert on the value of the firm. Nevertheless, it is important in helping investors such as banks to identify companies that are highly leveraged and therefore pose a higher risk. It is best explained by taking the example of an entrepreneur wishing to expand their operation and going to the bank for a loan. If this small business owner had total assets amounting to 120,000 U.S. dollars and liabilities (mostly loans) amounting to 100,000 U.S. dollars the bank to which the request is being made would first have to deduce the business owner’s equity; 20,000 dollars (total assets minus liabilities). With this figure the bank would proceed to divide total liabilities by equity, which gives the ratio of 500 percent. In other terms, this means that for every one dollar of equity the small business owner has 5 dollars of debt. He is highly leveraged and therefore represents high risk to the bank.

Ratio of total debt to equity in the United States from 1st quarter 2012 to 1st quarter 2020

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Sources

Release date

July 2020

Region

United States

Survey time period

Q1 2012 to Q1 2020

Supplementary notes

Debt to equity ratio is calculated by using debt as the numerator and capital and reserves as the denominator. It is a measure of corporate leverage the extent to which activities are financed out of own funds.
Figures have been rounded.

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