One new feature of Toolkit 6 is the addition of the Stock Selection Guide of Section 2, line C, a ten-year review of a company's "% Debt-to-Equity".
The debt-to-equity ratio is a measure of company's financial leverage, and is calculated by dividing a company's long-term debt by shareholders' equity. In looking at the company's debt-to-equity, we can see the proportions in which the company is using debt and equity to finance its growth.
If debt-to-equity is too high (for most industries, levels above 50% may be cause for concern), or if debt is trending up without corresponding growth in earnings, then the company may not be making the best use of its resources.
In Toolkit 6, click the magenta-outlined box on the right side of Section 2C to display a graph of up to ten years of debt-to-equity ratios along with the five-year average to assist you in identifying trends.
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