Debt-to-Equity Ratio
factor.formula
Leverage ratio calculation formula:
The total debt calculation formula is:
The meanings of the parameters in the formula are as follows:
- :
Refers to the total amount of all interest-bearing debts of a company at the end of the reporting period, including short-term loans that need to be repaid within one year and long-term loans that need to be repaid over one year. This indicator reflects the overall scale of a company's debt financing.
- :
Refers to the total equity of a company attributable to shareholders at the end of the reporting period, including paid-in capital (or share capital), capital reserve, surplus reserve, retained earnings, etc. This indicator reflects the size of a company's own capital and is the residual equity that shareholders have in the company's assets.
- :
Refers to the loans that a company needs to repay within one year or one operating cycle, usually including short-term bank loans, bills payable, etc. This indicator reflects the company's short-term debt repayment pressure.
- :
Refers to the loans that a company needs to repay in one year or one operating cycle, usually including long-term bank loans, bonds payable, etc. This indicator reflects the company's long-term debt repayment pressure.
factor.explanation
The leverage ratio (Debt-to-Equity Ratio) is an important indicator for measuring corporate financial risk. The higher the ratio, the more the company relies on debt to operate, the stronger the financial leverage effect, and it also means that the company bears higher financial risks, such as higher interest expenses and default risks; conversely, a lower leverage ratio indicates that the company relies more on its own funds to operate, with relatively low financial risks, but may miss the profit amplification effect brought by financial leverage. In quantitative investment, this factor can be used to construct a value investment strategy and screen targets with a sound financial structure and low risk. At the same time, investors should also comprehensively analyze the rationality of this ratio in combination with industry characteristics and the company's development stage. For example, high-growth companies may need appropriate debt financing to support business expansion, and the leverage ratio may be relatively high at this time.