GlossaryAccounting & Bookkeeping
Debt-to-Equity Ratio
Also called: debt equity ratio, D/E ratio
What is Debt-to-Equity Ratio?
The debt-to-equity ratio compares total borrowings with owners' equity, showing how much of the business is financed by lenders rather than by its owners. Higher means more leverage and more risk.
Why Debt-to-Equity Ratio matters
Leverage magnifies both directions. Cheap borrowing lifts returns while trade is good and forces repayments that do not pause when trade is not.
Debt-to-Equity Ratio formula
Debt-to-equity = Total debt ÷ Shareholders' equity
Interest coverage = operating profit ÷ interest expense.
How Debt-to-Equity Ratio works in practice
Read it with interest coverage, since the ability to service debt matters more than the ratio itself. Lenders usually set covenants around both.
Frequently asked questions
It varies widely by sector; asset-heavy businesses sustain more debt than service ones.