Plain-English definitions, reviewed by an independent investor
Debt-to-Equity Ratio
The debt-to-equity ratio compares borrowed money to owners’ equity, a leverage gauge.
The debt-to-equity ratio compares borrowed money to owners’ equity, a leverage gauge.
D/E = Total Debt ÷ Shareholders’ Equity
Why it matters
It shows how much of the business is funded by creditors versus owners.
Common confusion
High leverage amplifies both returns and the risk of distress.
Frequently Asked Questions
What is high D/E?
Above 2 often signals heavy leverage, but norms differ by industry.
D/E vs interest coverage?
D/E is stock of debt; coverage is the ability to pay interest.