How is the debt-to-equity ratio calculated?

The debt-to-equity ratio is a financial metric used to assess a company's leverage and financial health. It is calculated by dividing total liabilities by total equity. This ratio illustrates the proportion of debt used to finance the company's assets relative to the equity that shareholders have invested in the company. A higher ratio indicates that a company relies more on debt for financing compared to equity, which can signal higher financial risk.

Option B, which indicates that total liabilities should be divided by total equity, accurately reflects this calculation. Understanding this ratio is crucial for investors and analysts to evaluate the risk and return profile of a company, as it provides insight into how much of the company is financed through borrowed funds versus the shareholders' funds.

The other options, while they involve elements of financial metrics, do not represent the correct formula for debt-to-equity. Total Assets divided by Total Liabilities would not provide insight into the leverage of the company, and Total Equities divided by Total Revenue does not reflect the relationship between debt and equity. Finally, Total Liabilities divided by Total Assets focuses on a different aspect of financial analysis, such as the company’s solvency or ability to pay off its debts, rather than the financing structure indicated by the debt-to-equity ratio.