Debt-to-equity vs debt-to-assets
Debt-to-equity is debt over equity. Debt-to-assets is debt over assets. On $800,000 of assets and $500,000 of debt they read 1.67 and 62.50 percent. The equity multiplier on that sheet is 2.67, which is 1.67 plus one.
| Debt-to-equity | Debt-to-assets | |
|---|---|---|
| Formula | Debt / equity. | Debt / assets. |
| Teaching sheet | $500,000 / $300,000 = 1.67. | $500,000 / $800,000 = 62.50 percent. |
| Cap | Not capped at 1. Can sit well above 1. | A share of the sheet. At a solvent book-value firm it sits between 0 and 100 percent. |
| After a 10 percent asset fall | Equity falls to $220,000, so D/E rises because the denominator took the whole loss. | Assets fall to a smaller base under the same $500,000 of debt, so the percent rises too, by less than D/E does. |
| Less borrowed sheet | $200,000 / $600,000 = 0.33. | $200,000 / $800,000 = 25 percent. |
| When you would pick it | How much borrowing per dollar of residual. | What share of the assets was borrowed. |
On this page
One sheet, two formulas
On $800,000 of assets and $500,000 of debt, equity is $300,000. Debt-to-equity is 1.67. Debt-to-assets is 62.50 percent. The equity multiplier is 2.67, which is 1.67 plus one when the debt line is everything owed.
How debt-to-equity works is the first reading. How debt-to-assets works is the share. How leverage ratio works is the trio. A source quoting 1.67 and a source quoting 62.50 percent are not disagreeing if they measured the same $800,000 sheet.
The 10 percent fall hits the residual harder
Assets go to 90 percent of $800,000. Debt stays $500,000. Equity ends at $220,000, a 26.67 percent fall. D/E jumps because its denominator is that residual. D/A rises because its denominator shrank, but the dollar of debt is still being measured against most of the sheet.
On the $200,000 debt sheet, D/E is 0.33 and D/A is 25 percent. Equity falls to $520,000, 13.33 percent. This is educational material, not financial advice.
Worked examples
The 1.67 / 62.50 percent sheet
Assets $800,000, debt $500,000. What are D/E and D/A?
- Equity $300,000.
- D/E 1.67. D/A 62.50 percent. Multiplier 2.67.
Debt-to-equity is 1.67. Debt-to-assets is 62.50 percent. Equity is $300,000.
After the 10 percent fall
Same sheet, assets fall 10 percent. What happens to equity?
- Assets fall 10 percent. Debt stays $500,000.
- Equity falls to $220,000, a 26.67 percent drop.
Equity falls from $300,000 to $220,000, a 26.67 percent drop. D/E rises more than D/A because the residual took the whole dollar loss.
The 0.33 / 25 percent sheet
Assets $800,000, debt $200,000. What are D/E and D/A?
- Equity $600,000. D/E 0.33. D/A 25 percent. Multiplier 1.33.
- After the same 10 percent fall, equity $520,000, 13.33 percent.
Debt-to-equity is 0.33. Debt-to-assets is 25 percent. Equity starts at $600,000 and falls to $520,000.
Common questions
Can I convert 1.67 into 62.50 percent?
Not by multiplying by 100. 1.67 is debt per dollar of equity. 62.50 percent is debt per dollar of assets. Use equity $300,000 and assets $800,000, not a unit conversion.
Which one should I quote?
Name the formula. A table that mixes 1.67 with 62.50 percent without labels is two readings of one sheet presented as two firms.
Is 1.67 high?
It is $500,000 over $300,000 on the teaching sheet. This is educational material, not financial advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.