Summary
The Debt-to-Equity Ratio compares a company’s total debt with its shareholders’ equity. It shows how much debt the company uses relative to the capital provided by shareholders.
This ratio is a common measure of financial leverage.
Why it matters
Debt can help companies finance growth, but excessive debt may increase financial risk. The Debt-to-Equity Ratio helps investors understand how dependent a company is on borrowing.
A company with high leverage may be more sensitive to interest rates, earnings declines, or refinancing risk.
How it is calculated
Debt-to-Equity Ratio = Total Debt ÷ Total Equity
How to read it
A higher Debt-to-Equity Ratio generally indicates greater leverage and potentially higher risk. A lower ratio may suggest a more conservative financial structure.
Acceptable levels vary by industry, so the ratio is most useful when comparing similar companies.
When it may not be available
This ratio may not be shown for certain financial companies, where debt and equity structures are different from non-financial businesses and require different analysis.