Definition
D/E ratio measures financial leverage by comparing debt financing to equity financing. Higher ratios indicate more leverage and financial risk. Optimal ratios vary by industry: utilities may safely operate at 1.5x while tech companies often have minimal debt.
Formula
D/E Ratio = Total Debt / Shareholders' Equity
Example
A company with $200M total debt and $300M equity has D/E of 0.67x. This means creditors provide $0.67 for every $1 from shareholders, considered moderate leverage.
FAQ
What is Debt-to-Equity Ratio?
A leverage ratio comparing total debt to shareholders' equity.
How do you calculate Debt-to-Equity Ratio?
A common formula for Debt-to-Equity Ratio is: D/E Ratio = Total Debt / Shareholders' Equity
Why is Debt-to-Equity Ratio important?
Debt-to-Equity Ratio helps investors evaluate financial statements and make more informed decisions.