The required debt-equity ratio is 14:15
Solution:
Given:
Liabilities of the company = $14000
Equity of the company = $15000
To calculate: The debt-equity ratio
Here, the liabilities are included in the debt of the company. The debt-to-equity (D/E) ratio is calculated by dividing a company's total liabilities by its shareholder equity. Therefore, the debt equity ratio is as follows,
[tex]\text { Debt Equity ratio }=\frac{\text { Debt }}{\text { Equity }}=\frac{14000}{15000}=\frac{14}{15}[/tex]
[tex]\text { Debt Equity ratio }=\frac{14}{15} \rightarrow 14: 15[/tex]
The debt-equity ratio reflects the ability of shareholder equity to cover all outstanding debts in the event of a business downturn.
