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Debt/Equity Ratio

The debt/equity ratio is calculated by dividing a company's long-term debt by total shareholders' equity. It measures how much of a company is financed by its debtholders compared with its owners. A company with a lot of debt will have a very high debt/equity ratio, while one with little debt will have a low debt/equity ratio. Assuming everything else is identical, companies with lower debt/equity ratios are less risky than those with higher such ratios.

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