Glossary

Debt-to-equity ratio

Debt-to-equity ratio compares how much a company has borrowed with how much capital its owners have put in — a measure of how leveraged the business is.

2 min read

Debt ÷ equityHow it's calculated

LeverageWhat it signals

Definition

The debt-to-equity ratio divides a company's total borrowings by its shareholders' equity. A ratio of 1 means debt and owner capital are equal; a higher figure means the business leans more on borrowing, a lower one that it is funded mostly by its owners.

In plain terms

It shows how much of the business is built on borrowed money versus the owners' own. A modest ratio suggests headroom to borrow more; a high one signals the company is already heavily geared, which lenders read as higher risk. There is no universal right answer — it varies by sector — but it is one figure a lender weighs alongside cash flow. The related debt service coverage ratio asks the more immediate question of whether you can afford the repayments.