Debt-to-Equity Ratio
Definition
A leverage ratio measuring the proportion of a company's financing that comes from debt versus shareholders' equity.
Explanation
D/E ratio reveals how aggressively a company uses borrowed money. A D/E of 0.5 means 50 cents of debt for every dollar of equity. Above 2.0 is generally considered highly leveraged. However, optimal leverage varies by industry: utilities and REITs routinely operate at 2-3x D/E due to stable cash flows, while technology companies often maintain near-zero leverage. Excessive leverage amplifies both gains and losses and increases bankruptcy risk during downturns.
Formula
D/E = Total Debt / Total Shareholders' Equity
See This in Action
Explore how debt-to-equity ratio applies to real portfolios on Stoquity.
Start Free →