Debt to Equity Ratio
Debt to Equity Ratio is an indicator to see long-term solvency. Also called D/E Ratio. It shows how much capital you do not need to repay, called equity, for debt that needs repayment, called borrowed capital.
The lower the better, the general rule is 150 to 250% or less. The D/E ratio, which is often used in Japan, is often not the debt but the ratio of interest-bearing debt and equity capital. Note that even with the ratio name being same, the formulae may differ.
<Calculation formula>
Total Liabilities / Net Worth = Debt to Equity Ratio (%)
Fixed Assets to Net Worth
The fixed ratio is also an indicator to look at long-term solvency. Investment in fixed assets, which is a long-term investment, in accounting terms, it is safe to cover in the range of equity capital. Fixed ratio sees if it is within the scope of equity. The fixed ratio of 100% indicates that the total amount of fixed assets and the total amount of equity capital are the same.
The lower the number, the better. The general rule is 100% or less. Depending on the type of industry, it can be said that an investment that is many times more than the equity capital is an over-investment.
<Calculation formula>
Fixed Assets / Net Worth = Fixed Assets to Net Worth Ratio (%)
