Debit/equity ratio
The debt/equity ratio assesses a company's financial leverage. That is, it compares the total debt of a company to their shareholders' equity (i.e. net value of the company). The formula is:
A higher debt/equity ratio indicates that a company is using more debt to finance their operations. This can be riskier but has the potential to offer investors higher returns in the long term. A lower ratio shows a more conservative business management approach that relies less on using debt to grow their business.
We acknowledge and thank the FMA, Dr Karena Kelly and Brook Taurua Grant, the RBNZ and the Māori Dictionary for their research which helped us with te Reo Māori kupu for this glossary.
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