The capital structure decision and the cost of capital

Debt/Equity ratio is a kind of measure that determines a given businesss financial leverage. It is gotten by dividing the aggregate liabilities of a company by its shareholders equity. This is translated to mean the proportion that a business has as equity capital in comparison to the proportion that it holds as debt for the purposes of financing the assets of the company. It determines long-term borrowings paying ability of a given company. Thus a lesser D/E ratio would be recommended for a typical company.