Debt-to-Equity Ratio
Total interest-bearing debt divided by shareholders' equity. The most commonly cited capital-structure ratio.
When to use: Use to gauge financial leverage — how aggressively a firm finances itself with debt vs equity. Higher D/E means higher financial risk and higher equity returns in good times, but greater downside in bad. Compare across the same industry; capital-intensive sectors (utilities, real estate) carry much higher D/E than asset-light ones (software).
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| DE | Debt-to-Equity Ratio | Total debt / shareholders' equity | integer |
| TotalDebt | Total Debt | Short-term + long-term interest-bearing debt | $ |
| Equity | Shareholders' Equity | Book value of equity | $ |
Real-Life Examples
Example 1: Industrial Mid-Cap
Total debt $800M, shareholders' equity $1,000M.
Given
Step-by-Step
D/E of 0.80 — moderate leverage. For each $1 of equity, the firm has $0.80 of debt. Sustainable for an industrial; aggressive for a software firm; conservative for a utility.
Frequently Asked Questions
Both are used. Book D/E is what financial statements report and what credit analysts use; market D/E (using market cap for equity) better reflects current capital-market reality and is preferred for cost-of-capital work. Disclose which you're using.
Strongly industry-dependent. Software D/E ~0.2 is typical; industrial 0.5–1.5; utility 1.5–2.5; banks have entirely different leverage measures. The change over time within a single firm is more informative than the level.