Which of the following formulas represents the calculation for the Debt-Equity Ratio?

The Debt-Equity Ratio is a financial metric that compares a company's total liabilities to its total equity, providing insight into the firm's financial leverage and capital structure. The correct calculation is represented by dividing total liabilities by total equity. This ratio tells investors and creditors how much debt a company is using to finance its assets relative to the amount of equity.

When analyzing this ratio, a higher number indicates a greater reliance on borrowed funds, which may imply higher risk, while a lower number suggests less leverage and potentially lower risk. This metric is crucial for stakeholders when evaluating the overall financial health of a company and its ability to meet long-term obligations.

The other choices do not accurately reflect the relationship between debt and equity. For instance, the first and third options pertain to total assets and do not address the comparison needed for a debt-equity assessment. The fourth option, relating EBIT and interest expense, focuses on the company’s ability to cover interest payments rather than its financing structure. Each of these alternatives misses the core objective of directly assessing the balance between a company's debts and shareholders' equity.