Debt-to-Equity Ratio (D/E)

The debt-to-equity ratio compares a company total debt with its shareholders equity, showing how much it relies on borrowing versus owner funding. A higher ratio means more leverage and generally more financial risk. It is a quick gauge of how a company finances itself.

Compare D/E within an industry, since capital-heavy sectors like utilities normally carry more debt than software firms. A ratio under 1 often suggests conservative financing, while a very high ratio can amplify both gains and the risk of trouble in a downturn. Read it alongside interest coverage to see if the company can comfortably service its debt.

A company with 40 million dollars of debt and 80 million dollars of equity has a debt-to-equity ratio of 0.5, meaning it uses 50 cents of debt for every dollar of equity, a relatively conservative structure.