Educational purposes only. This content does not constitute investment advice. Read our disclaimer
StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
How much a company has borrowed compared to what shareholders own.
Why It Matters
Debt-to-equity shows how leveraged a company is. A ratio of 2.0 means the company has $2 of debt for every $1 of shareholder equity - that's risky if interest rates rise or business slows. During the 2008 crisis, highly leveraged companies went bankrupt while low-debt competitors survived. Look for companies that can handle their debt payments comfortably.
Key Points
- Calculate: Total Debt ÷ Shareholders' Equity. Below 1.0 is generally considered conservative
- What's 'normal' varies by industry: utilities and real estate naturally carry more debt than tech companies
- Rising debt-to-equity over time can signal a company taking on too much risk
Related Terms
Common Questions
How much a company has borrowed compared to what shareholders own. Debt-to-equity shows how leveraged a company is. A ratio of 2.
Debt-to-equity shows how leveraged a company is. A ratio of 2.0 means the company has $2 of debt for every $1 of shareholder equity - that's risky if interest rates rise or business slows. During the 2008 crisis, highly leveraged companies went bankrupt while low-debt competitors survived. Look for companies that can handle their debt payments comfortably.
Calculate: Total Debt ÷ Shareholders' Equity. Below 1.0 is generally considered conservative
What's 'normal' varies by industry: utilities and real estate naturally carry more debt than tech companies
Rising debt-to-equity over time can signal a company taking on too much risk