Finding Debt/Equity Ratio with Market Value of Equity
In order to calculate the ratio you are looking for, just divide total debt by the market capitalization of the stock. Both values can be found on the link you provided. The market capitalization is the market value of equity.
"Accounts track value: at any given time, a given account will have a given value. The type of account indicates what the value represents. Roughly: On a balance sheet (a listing of accounts and their values at a given point in time), there is typically only one equity account, representing net worth, I don't know much about GNUCash, though. Income and expenses accounts do not go on the balance sheet, but to find out more, either someone else or the GNUCash manual will have to describe how they work in detail. Equity is more similar to a liability than to assets. The equation Assets = Equity + Liabilities should always hold; you can think of assets as being ""what my stuff is worth"" and equity and liabilities together as being ""who owns it."" The part other people own is liability, and the part you own is equity. See balance sheet, accounting equation, and double-entry bookkeeping for more information. (A corporate balance sheet might actually have more than one equity entry. The purpose of the breakdown is to show how much of their net worth came from investors and how much was earned. That's only relevant if you're trying to assess how a company has performed to date; it's not important for a family's finances.)" I think I understand what I am doing wrong.  To provide some clarity, I am trying to determine what the value of a project is to a firm.  To do this I am taking FCF, not including interest or principal payments, and discounting back to get an NPV enterprise value.  I then back off net debt to get to equity value.  I believe what I am doing wrong is that I show that initial $50M as a cash outflow in period 0 and then back it off again when I go from enterprise value to equity value.  Does this make any sense?  Thanks for your help. "Lots of questions: In general, no. Market Capitalization and Equity represent 2 different things.  Equity first, the equity of a firm is the value of the assets (what it owns) less its liabilities (what it owes) and consists (broadly) of two components - share capital (what the firm gets when it sells to investors as part of an IPO or subsequent share issue) and retained earnings (what the firm has as a result of making profits and not paying them out as dividends). This is the theoretical liquidation value of the firm - what it is worth if it stops trading, sells all its assets and pays all its debts. Market Capitalization is the current value of the future cash flow of the firm as perceived by the market - the value today of all the dividends that the firm will pay in the future for as long as it exists. This is the theoretical going concern value of the firm - what it is worth as a functioning business. In general, Market Capitalization is bigger than Equity - if it isn't the firm is worth more as scrap than as an operating business. Um ... no. If you don't have any shares then you are by definition not an owner. Having shares is what makes you an owner. What I think you mean is, is it possible for the owner(s) of a private company to sell all of its shares when it goes public? The answer is yes. It is uncommon for a start-up owner to do this but it is standard practice for ""corporate raiders"" who buy failing companies, take them private, restructure them and then take them public again - they have done their job and they are not interested in maintaining an ownership stake. Nope. See above and below. Not at all, equity is an accounting construct and market capitalization is about market sentiment. Consider the following hypothetical firm: It has $1m in equity, it makes $4m in profit and will do for the foreseeable future, it pays all of that $4m out as dividends - if we work on a simple ROI of 10% then this firm is worth $40m dollars - way more than its equity." "With regards to ""the stock market,"" there are actually two markets involved here: PRIMARY MARKET Value is created in the primary market where capital is exchanged for a residual interest in an opportunity.  As a theoretical example, if a person operating solo (or with a small team) were to discover or create a breakthrough product, such as an retro-aging pill, that person likely wouldn't have the financial means to fully capitalize on his new-found idea.  Others with more capital may also soon discover his idea or improve upon it and exploit it before he has a chance to. For a real life example, a person studying at a California university during the 1990s discovered a method to index internet webpages and was approached by some students after a talk on the subject.  He returned to his native southern Europe country seeking funds to develop the web-indexing business and failed to do so.  Two of the students that approached him found capital readily available from investors in their campus sphere; their business is today one of the biggest in the world.  They had exchanged part of their residual interest for capital to develop their business. The primary market of the stock market works mostly same in creating value.  It is also dependent upon the secondary market. SECONDARY MARKET The secondary market indicates the day-to-day value of an enterprise.  That market allows shareholders to manage their risk appetites and the enterprise's operators to execute their shareholders' interest for gains.  In most cases, a secondary market reference will be used for pricing a primary market issuance.  Without that reference, capital would be allocated less efficiently creating additional costs for all involved, issuers and investors. Consider what would happen if you sought to purchase a house and the mortgage lenders had no indication what the property was worth.  This would make capital very expensive or possibly deny you access to credit.  By having an indication, all involved are better off.  That is value creating. There are some large developed economies' equity markets, such as that in Germany, where many large enterprises stay privately held and credit financing, mostly from banks, is used.  The approach has proven successful as well. So why do some nations' financial markets still rely on capricious stock markets when private credit financing may do just fine in many cases?  It's largely a matter of national culture.  Countries such as the Netherlands, the UK and the US have long had active equity markets in continuous use that investors have trusted for centuries. CONCLUSION When leaders of an enterprise wish to grow the business to a large size with investment from the stock market, they aren't limited by the size of their banks' capital.  Those leaders and their prospective investors will rely on the secondary market to determine values.  In addition, if the leaders raise equity instead of debt capital, they are usually accorded more flexibility to take risks since shareholders usually have their own flexibility to transfer those risks to other investors if for any number of reasons they choose to do so. Stock markets create value in many other ways.  The above are the main ways." "By the sounds of things, you're not asking for a single formula but how to do the analysis... And for the record you're focusing on the wrong thing. You should be focusing on how much it costs to own your car during that time period, not your total equity.  Formulas:  I'm not sure how well you understand the nuts and bolts of the finance behind your question, (you may just be a pro and really want a consolidated equation to do this in one go.) So at the risk of over-specifying, I'll err on the side of starting at the very beginning. Any financial loan analysis is built on 5 items: (1) # of periods, (2) Present Value, (3) Future Value, (4) Payments, and (5) interest rate.  These are usually referred to in spreadsheet software as NPER, PV, FV, PMT, and Rate. Each one has its own Excel/google docs function where you can calculate one as a function of the other 4. I'll use those going forward and spare you the 'real math' equations.  Layout: If I were trying to solve your problem I would start by setting up the spreadsheet  up with column A as ""Period"". I would put this label in cell A2 and then starting from cell A3 as ""0"" and going to ""N"". 5 year loans will give you the highest purchase value w lowest payments, so n=60 months... but you also said 48 months so do whatever you want.  Then I would set up two tables side-by-side with 7 columns each. (Yes, seven.) Starting in C2, label the cells/columns as: ""Rate"", ""Car Value"", ""Loan Balance"", ""Payment"", ""Paid to Interest"", ""Principal"", and ""Accumulated Equity"". Then select and copy cells C2:I2 as the next set of column headers beginning in K2. (I usually skip a column to leave space because I'm OCD like that :) ) Numbers: Now you need to set up your initial set of numbers for each table. We'll do the older car in the left hand table and the newer one on the right. Let's say your rate is 5% APR. Put that in cell C1 (not C3). Then in cell C3 type =C$1/12. Car Value $12,000 in Cell D3. Then type ""Down Payment"" in cell E1 and put 10% in cell D1. And last, in cell E3 put the formula =D3*(1-D$1). This should leave you with a value for the first month in the Rate, Car Value, and Loan Balance columns. Now select C1:E3 and paste those to the right hand table. The only thing you will need to change is the ""Car Value"" to $20,000. As a check, you should have .0042 / 12,000 / 10,800 on the left and then .0042 / 20,000 / 18,000 on the right.  Formulas again: This is where spreadsheets become amazing. If we set up the right formulas, you can copy and paste them and do this very complicated analysis very quickly.  Payment The excel formula for Payment is =PMT(Rate, NPER, PV, FV). FV is usually zero. So in cell F3, type the formula =PMT(C3, 60, E3, 0). Obviously if you're really doing a 48 month (4 year) loan then you'll need to change the 60 to 48. You should be able to copy the result from cell F3 to N3 and the formula will update itself.  For the 60 months, I'm showing the 12K car/10.8K loan has a pmt of $203.81. The 20K/18K loan has a pmt of 339.68.  Interest The easiest way to calculate the interest is as =E3*C3. That's (Outstanding Loan Balance) x (Periodic Interest Rate). Put this in cell G4, since you don't actually owe any interest at Period 0.  Principal If you pay PMT each month and X goes to interest, then the amount to principal is ""PMT - X"". So in H4 type =-F3 - G3. The 'minus' in front of F3 is because excel's PMT function returns a negative amount. If you want to, feel free to type ""=-PMT(...)"" for the formula that's actually in F3. It's your call.  I get 159 for the amount to principal in period 1.  Accumulated Equity As I mentioned in the comment, your ""Equity"" comes from your initial Loan-to-Value and the accumulated principal payments. So the formula in this cell should reflect that. There are a variety of ways to do this... the easiest is just to compare your car's expected value to your loan balance every time. In cell I3, type =(D3-E3). That's your initial equity in the car before making any payments. Copy that cell and paste it to I4. You'll see it updates to =(D4-E3) automatically. (Right now that is zero... those cells are empty, but we're getting there) The important thing is that as JB King pointed out, your equity is a function of accumulated principal AND equity, which depreciates. This approach handles those both.  Finishing up the copy-and-paste formulas I know this is long, but we're almost done.  Rate // Period 1 In cell C4 type =C3.  Payment // Period 1 In cell F4 type =F3.  Loan Balance // Period 1 In cell E4 type =E3-H4. Your loan balance at the end of period is reduced by the principal you paid. I get 10,641.  Car Value // Period 1 This will vary depending on how you want to handle depreciation. If you ignore it, you're making a major error and it's not worth doing this entire analysis...  just buy the prettiest car and move on with life. But you also don't have to get it scientifically accurate. Go to someplace like edmunds.com and look up a ballpark. I'm using 4% depreciation per year for the old (12K) car and 7% for the newer car. However, I pulled those out of my ass so figure out what's a better ballpark.  In G1 type ""Depreciation"" and then put 4% in H1. In O1 type ""Depreciation"" and then 7% in P1. Now, in cell D4, put the formula =D3 * (1-(H$1/12)).  Paste formulas to flesh out table As a check, your row 4 should read 1 / .0042 / 11,960 / 10,641 / 203.81 / 45 / 159 / 1,319. If so, you're great. Copy cells C4:I4 and paste them into K4:Q4.  These will update to be .0042 / 19,883 / 17,735 / 339.68 / 75 / 265 / 2,148.  If you've got that, then copy C4:Q4 and paste it to C5:C63. You've built a full amortization table for your two hypothetical loans. Congratulations.  Making your decision I'm not going to tell you what to decide, but I'll give you a better idea of what to look at. I would personally make the decision based on total cost to own during that time period, plus a bit of ""x-factor"" for which car I really liked.  Look at Period 24, in columns I and Q. These are your 'equities' in each car. If you built the sheet using my made-up numbers, then you get ""Old Car Equity"" as 4,276. ""New Car Equity"" is 6,046. If you're only looking at most equity, you might make a poor financial decision.  The real value you should consider is the cost to own the car (not necessarily operate it) during that time... Total Cost = (Ending Equity) - (Payment x 24) - (Upfront Cash).  For your 'old' car, that's (4,276) - (203.81 * 24) - (1,200) = -1,815.75 For the 'new' car, that's (6,046) - (339.68 * 24) - (2,000) = -4,106.07.  Is one good or bad? Up to you to decide. There are excel formulas like ""CUMPRINC"" that can consolidate some of the table mechanics, but I assumed that if you're here asking you would have gotten stuck running some of those.  Here's the spreadsheet: https://docs.google.com/spreadsheet/ccc?key=0Ah0weE0QX65vdHpCNVpwUzlfYjlTY2VrNllXOS1CWUE#gid=1" "From Wikipedia: Usage Because EV is a capital structure-neutral metric, it is useful when   comparing companies with diverse capital structures. Price/earnings   ratios, for example, will be significantly more volatile in companies   that are highly leveraged. Stock market investors use EV/EBITDA to compare returns between   equivalent companies on a risk-adjusted basis. They can then   superimpose their own choice of debt levels. In practice, equity   investors may have difficulty accurately assessing EV if they do not   have access to the market quotations of the company debt. It is not   sufficient to substitute the book value of the debt because a) the   market interest rates may have changed, and b) the market's perception   of the risk of the loan may have changed since the debt was issued.   Remember, the point of EV is to neutralize the different risks, and   costs of different capital structures. Buyers of controlling interests in a business use EV to compare   returns between businesses, as above. They also use the EV valuation   (or a debt free cash free valuation) to determine how much to pay for   the whole entity (not just the equity). They may want to change the   capital structure once in control. Technical considerations Data availability Unlike market capitalization, where both the market price and the   outstanding number of shares in issue are readily available and easy   to find, it is virtually impossible to calculate an EV without making   a number of adjustments to published data, including often subjective   estimations of value: In practice, EV calculations rely on reasonable estimates of the   market value of these components. For example, in many professional   valuations: Avoiding temporal mismatches When using valuation multiples such as EV/EBITDA and EV/EBIT, the   numerator should correspond to the denominator. The EV should,   therefore, correspond to the market value of the assets that were used   to generate the profits in question, excluding assets acquired (and   including assets disposed) during a different financial reporting   period. This requires restating EV for any mergers and acquisitions   (whether paid in cash or equity), significant capital investments or   significant changes in working capital occurring after or during the   reporting period being examined. Ideally, multiples should be   calculated using the market value of the weighted average capital   employed of the company during the comparable financial period. When calculating multiples over different time periods (e.g. historic   multiples vs forward multiples), EV should be adjusted to reflect the   weighted average invested capital of the company in each period. In your question, you stated: The Market Cap is driven by the share price and the share price is   determined by buyers and sellers who have access to data on cash and   debts and factor that into their decision to buy or sell. Note the first point under ""Technical Considerations"" there and you will see that the ""access to data on cash and debts"" isn't quite accurate here so that is worth noting. As for alternatives, there are many other price ratios one could use such as price/earnings, price/book value, price/sales and others depending on how one wants to model the company. The better question is what kind of investing strategy is one wanting to use where there are probably hundreds of strategies at least. Let's take Apple as an example. Back on April 23, 2014 they announced earnings through March 29, 2014 which is nearly a month old when it was announced. Now a month later, one would have to estimate what changes would be made to things there. Thus, getting accurate real-time values isn't realistic. Discounted Cash Flow is another approach one can take of valuing a company in terms of its future earnings computed back to a present day lump sum." Aswath Damodaran's [Investment Valuation 3rd edition](http://www.amazon.com/Investment-Valuation-Techniques-Determining-University/dp/1118130731/ref=sr_1_12?ie=UTF8&amp;qid=1339995852&amp;sr=8-12&amp;keywords=aswath+damodaran) (or save money and go with a used copy of the [2nd edition](http://www.amazon.com/gp/offer-listing/0471414905/ref=dp_olp_used?ie=UTF8&amp;condition=used))  He's a professor at Stern School of Business. His [website](http://pages.stern.nyu.edu/~adamodar/) and [blog](http://aswathdamodaran.blogspot.com/) are good resources as well. [Here is his support page](http://pages.stern.nyu.edu/~adamodar/New_Home_Page/Inv3ed.htm) for his Investment Valuation text. It includes chapter summaries, slides, ect. If you're interested in buying the text you can get an idea of what's in it by checking that site out. Stock price = Earning per share * P/E Ratio. Most of the time you will see in a listing the Stock price and the P/E ration. The calculation of the EPS is left as an exercise for the student Investor.