Debt to Equity Ratio

Compares total liabilities to unrestricted net assets.

Formula:

der = total_liabilities / unrestricted_net_assets

Definitional Range

Bounded below at zero when liabilities are non-negative and unrestricted net assets are positive. Unbounded above when unrestricted net assets are very small. Values below zero occur when unrestricted net assets are negative (accumulated deficits exceed unrestricted equity), an acute financial distress signal. The ratio is undefined (NA) when unrestricted net assets equal zero.

Benchmarks and rules of thumb

• Values below 1.0 mean total liabilities are less than the unrestricted equity base – generally considered strong.

• Values between 1.0 and 3.0 indicate moderate leverage.

• Values above 5.0 indicate very high leverage relative to the equity base and are a common vulnerability threshold.

• Negative values indicate negative unrestricted net assets, which almost always signals significant financial stress.

Calculated For: 990 filers only.

Usage

get_debt_equity_ratio( df,
  debt   = c( "F9_10_LIAB_TOT_EOY",       "F9_01_NAFB_LIAB_TOT_EOY"    ),
  equity = "F9_10_NAFB_UNRESTRICT_EOY",
  restricted_net_assets = "F9_10_NAFB_RESTRICT_EOY",
  total_net_assets      = "F9_10_NAFB_TOT_EOY",
  winsorize = 0.98 ,
  range     = "np",
  sanitize  = TRUE,
  summarize = FALSE )

Arguments

df

A data.frame containing the fields required for computing the metric.

debt

Total liabilities, EOY. Accepts one or two column names; if two are provided they are coalesced with the 990 value taking priority.

equity

Unrestricted net assets, EOY. Accepts one or two column names; if two are provided they are coalesced with the first taking priority.

restricted_net_assets

Restricted net assets, EOY. Used with total_net_assets to detect filers that do not follow SFAS 117; see resolve_unrestricted_net_assets().

total_net_assets

Total net assets, EOY. Substituted for unrestricted net assets when unrestricted and restricted net assets are both zero. Set to NULL to disable the fallback.

winsorize

The winsorization value (between 0 and 1), defaults to 0.98, which winsorizes at the 1st and 99th percentiles.

range

Character string specifying the theoretical range of the ratio, used to set winsorization bounds. Default "np". Options: "np" (negative to positive), "zp" (zero to positive), "zo" (zero to one), "nz" (negative to zero), or a custom "lo;hi" pair (e.g. "0;10").

sanitize

Logical (default TRUE). If TRUE, NA values in the financial input columns are imputed to zero before the ratio is computed, respecting form scope: Part X and VIII/IX fields (990 only) are imputed only for 990 filers; Part I summary fields (990 + 990EZ) are imputed for all filers. The returned dataframe always contains the original unmodified input columns.

summarize

Logical. If TRUE, prints a summary() of the results and plots density curves for all four output columns (raw, winsorized, z-score, percentile). Defaults to FALSE.

Value

Object of class data.frame: the original dataframe appended with four new columns:

- `debt_equity`   - debt to equity ratio (raw)
- `debt_equity_w` - winsorized version
- `debt_equity_z` - standardized z-score (based on winsorized values)
- `debt_equity_p` - percentile rank (1-100)

Details

Primary uses and key insights

The debt to equity ratio compares total obligations to the organization's equity cushion - its unrestricted net assets. In the nonprofit context, unrestricted net assets represent the accumulated surplus that the organization controls without donor restriction: the purest measure of its financial equity. A high ratio signals that liabilities substantially exceed the equity base, meaning a relatively small revenue shortfall could impair the ability to meet obligations.

This ratio is closely related to get_debt_assets_ratio() (DAR), but uses unrestricted net assets as the denominator instead of total assets. It is a stricter solvency measure because unrestricted net assets are typically much smaller than total assets, and because restricted assets cannot be used to pay general obligations.

Formula variations and their sources

The commercial debt/equity ratio uses total debt / shareholders' equity. The nonprofit adaptation substitutes unrestricted net assets for equity, following Tuckman & Chang (1991) and the argument that only unrestricted resources represent true organizational equity available to cover obligations.

An alternative uses total net assets in the denominator (restricted + unrestricted), which is more generous and less analytically precise; see get_debt_netassets_ratio(). A third variant uses only long-term debt in the numerator. This implementation uses total liabilities / unrestricted net assets as the most commonly cited nonprofit version.

Canonical citations

• Tuckman, H.P. & Chang, C.F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445-460.

• Bowman, W. (2011). Financial capacity and sustainability of ordinary nonprofits. Nonprofit Management and Leadership, 22(1), 37-51.

Variables used:

• F9_10_LIAB_TOT_EOY: Total liabilities, EOY (debt)

• F9_01_NAFB_LIAB_TOT_EOY: Total liabilities from Part I line 21 (debt, fallback)

• F9_10_NAFB_UNRESTRICT_EOY: Unrestricted net assets, EOY (equity)

• F9_10_NAFB_RESTRICT_EOY: Restricted net assets, EOY (restricted_net_assets)

• F9_10_NAFB_TOT_EOY: Total net assets, EOY (total_net_assets)

Unrestricted net assets fall back to total net assets for filers that do not follow SFAS 117 (see resolve_unrestricted_net_assets()).

Examples

library( fiscal )
data( dat10k )

d <- get_debt_equity_ratio( df = dat10k )
#>    :: Unrestricted and restricted net assets both zero (non-SFAS 117) :: 1,305 case(s) use total net assets
#>    :: Equity equal to zero :: 170 case(s) replaced with NaN
head( d[ , c( "debt_equity", "debt_equity_w", "debt_equity_z", "debt_equity_p" ) ] )
#>   debt_equity debt_equity_w debt_equity_z debt_equity_p
#> 1          NA            NA            NA            NA
#> 2   0.0000000     0.0000000    -0.6744908             8
#> 3          NA            NA            NA            NA
#> 4   0.1295450     0.1295450     0.3782937            67
#> 5          NA            NA            NA            NA
#> 6   0.2364865     0.2364865     0.5293368            74