📝 What is Debt to Equity Ratio?
🏦 What is Debt to Equity Ratio?
Imagine you want to open a burger shop 🍔.
✔️ You have ₹1,00,000 of your own money.
✔️ You also borrow ₹2,00,000 loan from a bank.
Now what’s happening? 🤔
👉 You are running your business with both your money AND other people’s money (loan).
Debt to Equity Ratio helps you understand this mix! 🎯
🎯 What is Debt to Equity Ratio?
👉 Debt to Equity Ratio = Total Debt ÷ Shareholders' Equity
✔️ Debt = Money borrowed from banks or others 🏦
✔️ Equity = Money owned by shareholders (like YOU) 💰
🎨 Funny Example:
Bunty opens a tea stall ☕:
✔️ He invests ₹50,000 of his own money (Equity = ₹50,000).
✔️ Takes ₹1,00,000 loan from his uncle (Debt = ₹1,00,000).
👉 Debt to Equity Ratio = ₹1,00,000 ÷ ₹50,000 = 2
Means: For every ₹1 of Bunty’s own money, ₹2 is borrowed money!
😮 So the business is running more on loan than on Bunty’s own cash!
🤔 Why is This Ratio Important?
✔️ Tells how much the company depends on loans.
✔️ Shows the financial risk — more loans = more risk! ⚠️
✅ Low Debt/Equity Ratio (below 1) = Company using mostly its own money = Safe 🏠
❌ High Debt/Equity Ratio (above 2) = Company depends heavily on loans = Risky! 💣
💥 When Low Debt to Equity Ratio is Good?
✔️ Company is safe during bad times (no loan burden)
✔️ Less interest to pay = More profit! 😍
⚠️ When High Debt to Equity Ratio is Dangerous?
❌ Company must pay big interest — even if no profit! 😱
❌ During bad times — risk of default or bankruptcy! 🚨
🎯 But Wait… High Debt is Not Always Bad!
Some industries (like construction 🏗️ or airlines ✈️) NEED big loans to operate.
✔️ If these companies earn well — high debt is OK.
✔️ But if profits fall — they crash like a bad spaceship! 🚀💥
🏆 Quick Gyaan:
✔️ Debt to Equity Ratio below 1 = Safe zone! 🛡️
✔️ Debt to Equity Ratio 1-2 = Acceptable for growing businesses! 🌱
✔️ Debt to Equity Ratio above 2 = Caution! Check more details! 🔍
🎈 Funny Tip:
Checking Debt to Equity Ratio is like checking your friend's credit card bill before lending him money —
Too many loans? Better say NO! 🚫💳😂
🔑 In Short:
✔️ Debt to Equity Ratio = How much loan vs own money in business.
✔️ Low Ratio = Peaceful sleep for investors 😴
✔️ High Ratio = Tension + Risk + Nightmares 😬
💡 "A strong business stands on its own feet, not on borrowed crutches!" 🦵💰