Debt-to-equity divides total debt by shareholder equity. It measures leverage — how much of the business is funded by borrowing rather than by owners' capital. Higher leverage amplifies both gains and losses.
The formula
Total DebtShareholder Equity
= Debt-to-Equity
Why it matters
- —Highly leveraged companies are more exposed to rising interest rates and economic downturns.
- —Some leverage is normal and even healthy — banks and REITs run structurally higher D/E than software companies.
- —Pairs well with the current ratio for a fuller liquidity-and-leverage picture.
How to read it
| < 0.5× | Conservative balance sheet |
| 0.5×–1.5× | Moderate leverage, common for most industries |
| > 2× | Highly leveraged — higher financial risk |
Most conservative balance sheets (lowest D/E)
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