Debt-to-equity ratio

Debt-to-equity ratio

The Debt-to-equity ratio compares a company’s total debt to its owners’ equity. It shows how much of the business is financed by borrowing versus owners’ funds. You get it by dividing total liabilities by shareholders’ equity.

A higher ratio means more leverage and potentially higher risk; a lower ratio signals more cushion from equity. Use it to track trends and compare with similar businesses. Be consistent in how you calculate it, because methods can vary.

Box illustration

Simple example

If total liabilities are 300 and equity is 150, the debt-to-equity ratio is 2. You can also write it as 2:1.

Keep these calculation choices consistent:

  • Use either total liabilities or only interest‑bearing debt.
  • Base it on period‑end balances or use averages over the period.
  • Decide whether shareholder loans count as debt or equity.
  • If equity is negative, the ratio isn’t meaningful—look at other indicators.
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