0.5 be the debt-equity ratio should be used when calculating the project's flotation costs.
Debt to equity ratio is a type of leverage ratio that is used to determine the financial leverage that a company uses. Debt to equity ratio takes into account the company’s liabilities and the shareholders equity.
It is regarded as an important ratio in accounting as it establishes a relationship between the total liabilities and shareholders equity of a company.
In other words, debt to equity ratio calculates to what extent the company is utilizing debt as compared to equity for running the business.
A very significant part of the debt to equity ratio is that it depicts the ability of the shareholder’s equity to clear all the outstanding debts in case of the business going bankrupt.
Debt to equity ratio can be calculated by dividing the total liabilities by the total equity of the business.
It can be represented in the form of a formula in the following way
Debt to Equity Ratio = Total Liabilities / Shareholders Equity
Where,
Total liabilities = Short term debt + Long term debt + Payment obligations
Shareholders equity = Financing done by shareholders of the company
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