The formula for calculating the debt-to-equity ratio is
A)Total liabilities divided by total stockholders' equity.
B)Total liabilities divided by stockholders' equity provided by preferred stockholders.
C)Long-term liabilities divided by total stockholders' equity.
D)Long-term liabilities divided by stockholders' equity provided by preferred stockholders.

Question

Quizplus · Accepted Answer

The debt-to-equity ratio compares a company's total liabilities to its total stockholders' equity. Therefore, the formula for calculating this ratio is total liabilities divided by total stockholders' equity. Option A correctly represents this formula. Options B and D are incorrect as they only consider the equity provided by preferred stockholders instead of all stockholders. Option C is also incorrect as it only considers long-term liabilities instead of all liabilities.

The Formula for Calculating the Debt-To-Equity Ratio Is