Debt to Equity Ratio

Hi everyone,

I was going over some FRA problems and one of them asked to calculate the debt to equity ratio. In the question the company had short term borrowings, interest bearing short term debt and interest bearing long term debt. My understanding was that for the debt to equity ratio, only interest bearing debt was considered. How should we approach this in the exam? Should we always assume that ALL debt should be in the numerator or only interest bearing debt. I have seen both and nothing is mentioned in the questions.

thanks a lot

By definition, debt bears interest.

Perhaps you’re thinking of liabilities that don’t bear interest?

Right! My bad, it was non interest bearing liabilities.


D/E should be debt to equity, not liabilities to equity.