Debt–equity ratio: Class 12 practice
Debt–equity ratio = long-term debt ÷ shareholders' funds (share capital + reserves). Read the method, follow the three worked examples, then try the six questions.
What you should know first
- Balance sheet structure
The idea behind debt–equity ratio
Debt–equity ratio = long-term debt ÷ shareholders' funds (share capital + reserves). A lower ratio means less financial risk. Total assets to debt = total assets ÷ long-term debt.
Step-by-step method
- Long-term debt: debentures, long-term loans.
- Shareholders' funds = share capital + reserves and surplus.
- Divide.
Worked example 1 (Basic)
Share capital ₹6,00,000, reserves ₹0, 9% debentures ₹7,00,000. Find the debt–equity ratio.
- Equity = ₹6,00,000
- Debt–equity = ₹7,00,000 ÷ ₹6,00,000 = 1.17 : 1
- Answer: 1.17 : 1
Worked example 2 (Standard)
Share capital ₹2,00,000, reserves ₹1,00,000, 9% debentures ₹7,00,000. Find the debt–equity ratio.
- Equity = ₹3,00,000
- Debt–equity = ₹7,00,000 ÷ ₹3,00,000 = 2.33 : 1
- Answer: 2.33 : 1
Worked example 3 (Challenge)
Total assets ₹19,00,000, long-term debt ₹8,00,000. Find the total assets to debt ratio.
- ₹19,00,000 ÷ ₹8,00,000
- = 2.38 : 1
- Answer: 2.38 : 1
Common mistakes and misconceptions
- Counting current liabilities as debt
- Leaving reserves out of equity
Practice questions
- (Basic) Share capital ₹8,00,000, reserves ₹2,50,000, 9% debentures ₹6,00,000. Find the debt–equity ratio.
- (Basic) Share capital ₹2,00,000, reserves ₹2,50,000, 9% debentures ₹8,00,000. Find the debt–equity ratio.
- (Standard) Share capital ₹2,00,000, reserves ₹2,50,000, 9% debentures ₹7,00,000. Find the debt–equity ratio.
- (Standard) Share capital ₹10,00,000, reserves ₹50,000, 9% debentures ₹1,00,000. Find the debt–equity ratio.
- (Challenge) Total assets ₹11,50,000, long-term debt ₹7,00,000. Find the total assets to debt ratio.
- (Challenge) Total assets ₹10,00,000, long-term debt ₹2,00,000. Find the total assets to debt ratio.
Answer key with full working
- Q1: Equity = ₹10,50,000 → Debt–equity = ₹6,00,000 ÷ ₹10,50,000 = 0.57 : 1 → Answer: 0.57 : 1
- Q2: Equity = ₹4,50,000 → Debt–equity = ₹8,00,000 ÷ ₹4,50,000 = 1.78 : 1 → Answer: 1.78 : 1
- Q3: Equity = ₹4,50,000 → Debt–equity = ₹7,00,000 ÷ ₹4,50,000 = 1.56 : 1 → Answer: 1.56 : 1
- Q4: Equity = ₹10,50,000 → Debt–equity = ₹1,00,000 ÷ ₹10,50,000 = 0.1 : 1 → Answer: 0.1 : 1
- Q5: ₹11,50,000 ÷ ₹7,00,000 → = 1.64 : 1 → Answer: 1.64 : 1
- Q6: ₹10,00,000 ÷ ₹2,00,000 → = 5 : 1 → Answer: 5 : 1
Syllabus note
This skill is listed under "Accounting Ratios" for Class 12 in the NCERT/CBSE books. ICSE, IGCSE, IB and state boards may teach it in a different chapter or year.
Answers on this page are generated and automatically re-checked by a second, independent calculation. They have not been reviewed by a teacher — if you spot a problem, tell us on WhatsApp.
Related practice and notes
- Current ratio and quick ratio
- Inventory turnover ratio
- Gross profit and net profit ratios
- Trade receivables turnover
- Working capital and its turnover
- Return on investment (capital employed)
- Interest on capital and drawings
- New and sacrificing ratio on admission
- Gaining ratio on retirement
- Valuation of goodwill
- All Class 12 practice
Frequently asked questions
Which chapter is debt–equity ratio in?
"Accounting Ratios", Class 12 Accountancy (NCERT/CBSE). Other boards may place it differently.
How were the answers checked?
Answers on this page are generated and automatically re-checked by a second, independent calculation. They have not been reviewed by a teacher — if you spot a problem, tell us on WhatsApp.