This PPT slide, part of the 22-slide Financial Ratios (Comparables) Analysis PowerPoint presentation, presents a detailed overview of the Debt to Equity (D/E) ratio, a critical solvency ratio that assesses the financial structure of a company. It highlights the D/E ratio's significance in understanding how funds are sourced within a balance sheet. The terminology used, such as "leverage" and "bearing," indicates the common references to this ratio, which can lead to confusion due to varying calculation methods.

The slide outlines the formula for calculating the D/E ratio, which involves total debt and total equity. Total debt includes long-term liabilities and current liabilities, while total equity encompasses ordinary funds, issued capital, capital reserves, and revenue reserves. This breakdown is essential for executives to grasp the components that contribute to the overall financial health of a business.

The section labeled "What It Does" clarifies the D/E ratio's role in comparing funds supplied by owners versus borrowed funds. It emphasizes the ratio's importance in defining a company’s safety level regarding its ability to withstand financial setbacks. High leverage typically indicates increased financial risk, as obligations to creditors take precedence over shareholders' equity.

Drivers affecting the D/E ratio are also mentioned, including the nature of debt—distinguishing between long-term and short-term loans. The slide notes that understanding these drivers is crucial for assessing business risk, which can vary significantly across industries. This information is vital for potential customers considering the implications of financial ratios on their strategic decisions.

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Financial Analysis M&A (Mergers & Acquisitions)