Debt-to-Equity Ratio Calculator
Calculate financial leverage and capital structure
D/E Ratio Formulas
Understanding Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio measures a company's financial leverage by comparing total liabilities to shareholders' equity. It shows how much debt a company uses to finance its operations relative to the value owned by shareholders.
A D/E of 1.0 means equal amounts of debt and equity. Higher ratios indicate more debt financing, which can amplify returns but also increases financial risk. Lower ratios suggest conservative financing with more equity.
This ratio is crucial for investors assessing risk, lenders evaluating creditworthiness, and management making capital structure decisions. It varies widely by industry—capital-intensive sectors typically carry more debt.
Risk Levels by D/E Ratio
D/E < 0.5
Conservative. Low leverage, financially stable, but may miss growth opportunities.
D/E 0.5 - 1.0
Moderate. Balanced leverage. Common for established companies.
D/E 1.0 - 2.0
Aggressive. Higher returns possible but increased financial risk.
D/E > 2.0
High risk. Heavy debt burden. Vulnerable to interest rate changes and downturns.
Industry D/E Benchmarks
| Industry | Typical D/E | Why | Notes |
|---|---|---|---|
| Utilities | 1.0 - 2.0 | Capital intensive | Stable cash flows |
| Real Estate | 1.5 - 3.0 | Asset-backed | Property collateral |
| Technology | 0.1 - 0.5 | Asset-light | Often cash-rich |
| Banking | 5.0 - 15.0 | Business model | Deposits = liabilities |
| Retail | 0.5 - 1.5 | Inventory financing | Varies widely |
Tips for D/E Analysis
Consider Industry
Capital-intensive industries (utilities, manufacturing) naturally carry more debt. Compare within sectors.
Check Debt Maturity
Long-term debt is less risky than short-term. A company may have high D/E but manageable if debt is long-dated.
Interest Coverage
High D/E is less concerning if the company easily covers interest payments. Check interest coverage ratio.
Economic Cycle
High leverage is riskier in recessions. Companies with high D/E may face solvency issues in downturns.
Frequently Asked Questions
What is a good debt-to-equity ratio?
It depends heavily on industry. Generally, below 1.0 is considered conservative, 1.0-2.0 is moderate. Tech companies often have 0.1-0.5, while utilities may be 1.5-2.5. Compare to industry peers.
Is a high D/E ratio always bad?
Not necessarily. Debt is cheaper than equity (interest is tax-deductible). If a company can earn more on borrowed money than the interest cost, leverage increases shareholder returns. Risk tolerance and stability matter.
What's included in total debt?
All liabilities: short-term debt, long-term debt, bonds payable, lease obligations, accounts payable, and other obligations. Some analysts use only interest-bearing debt for a more focused view.
How can a company improve its D/E ratio?
Reduce debt (pay down loans, refinance), increase equity (retain earnings, issue shares), or convert debt to equity. Operating improvements that boost profits also increase equity over time.
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