Debt To Equity

The Debt To Equity Fundamental Analysis lookup allows you to check this and other indicators for any equity instrument. You can also select from a set of available indicators by clicking on the link to the right. Please note, this module does not cover all equities due to inconsistencies in global equity categorizations. Please continue to Equity Screeners to view more equity screening tools.
  
High Debt to Equity ratio typically indicates that a firm has been borrowing aggressively to finance its growth and as a result may experience a burden of additional interest expense. This may reduce earnings or future growth. On the other hand a small D/E ratio may indicate that a company is not taking enough advantage from financial leverage. Debt to Equity ratio measures how the company is leveraging borrowing against the capital invested by the owners.

D/E

 = 

Total Debt

Total Equity

Debt to Equity is calculated by dividing the Total Debt of a company by its Equity. If the debt exceeds equity of a company, then the creditors have more stakes in a firm than the stockholders. In other words, Debt to Equity ratio provides analysts with insights about composition of both equity and debt, and its influence on the valuation of the company.

Debt To Equity In A Nutshell

This is a measure of risk many people use in their research to gauge how leveraged the company is and if there is risk by having too much debt on their books. For a quick understanding, the higher the number the more debt the company has on the books and this could be the cause of growth or stress. The lower the number, the less debt the company has and is not as leveraged, meaning they do not owe substantial sums of money.

Debt to equity is a measure used to compare the financials of a company to others within the same industry along with measuring its leverage. This is calculated by taking the companies debt and dividing it by the equity in the company, giving you a number expressed in a percentage.

Closer Look at Debt To Equity

Taking is a step further, some of the reasons you may not want to invest in a company that has a high debt to equity number is if the markets begin to slow and sales are affected, they may not be able to pay back their loans, leading to a possible bankruptcy. Secondly, if the number is high, they may be depending on lending to keep cash flow healthy, which is not a sustainable growth model.

On the other side, if the number is low, this means they are not leveraged and are either doing well enough to not need debt or lenders may not lend to them. You will have to research this because the answer would dictate where you go from there. A little debt is alright, but you do not want the company to be over leveraged.

Another way to use this ratio is to compare it to others within the same industry, that way you can see the average of the whole industry. If it is too leveraged, you may look elsewhere within the industry to give you less risk and more value for your dollar.

This is typically one of the most widely used ratios and should be at the front of your fundamental research tool kit. Be sure to look under the hood and find what is driving the result of your equation because there may be more than just the number. Remember that this takes in data and no human emotion, so if you get a feel the company is going one direction, take that into account to help give you a well rounded opinion before jumping into an investment.

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Pair Trading with Investor Education

One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Investor Education position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Investor Education will appreciate offsetting losses from the drop in the long position's value.
The ability to find closely correlated positions to Xylem could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Xylem when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Xylem - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Xylem Inc to buy it.
The correlation of Xylem is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Xylem moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Xylem Inc moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Xylem can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.
Pair CorrelationCorrelation Matching
Check out Investing Opportunities to better understand how to build diversified portfolios. Also, note that the market value of any private could be closely tied with the direction of predictive economic indicators such as signals in estimate.
You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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