What is included in the equity portion of the debt to equity ratio? Is anything eliminated?

Expert Solution

Answer

Shareholder's equity is computed as follows:

Shareholder's equity = Common stock + Preferred stock + Retained earnings + Other comprehensive income - Treasury stock

Explanation

Debt to equity ratio is the ratio which shows the relationship between total debt and shareholders equity of the company. it is computed using the equation given below:

Debt to equity ratio = Total debt / Shareholders' equity

Shareholders' equity section includes all the shares capital of the company. it includes common shares equity, preferred stock, retained earnings and other comprehensive incomes of the company.

Treasury stock value is deducted from the sum of all the above mentioned accounts to compute the shareholder's equity of the company. the formula to compute shareholder's equity is:

Shareholder's equity = Common stock + Preferred stock + Retained earnings + Other comprehensive income - Treasury stock

ekkarill92 answered 1 week ago

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