GlossaryIntermediate
Debt-to-Equity Ratio
Total debt divided by shareholder equity, a standard measure of a company's financial leverage.
The Debt-to-Equity ratio divides a company's total debt by its shareholder equity, measuring financial leverage — how much of the company's operations are funded by borrowed money relative to the capital shareholders have invested.
A higher ratio generally means more financial risk (more fixed debt obligations to service regardless of how the business performs), but also potentially higher returns on equity if the borrowed capital is deployed effectively — leverage amplifies outcomes in both directions. See Kaavon's dedicated Debt-to-Equity Ratio article for the full calculation.
Examples
- A high Debt-to-Equity ratio means a company relies heavily on borrowed capital relative to shareholder equity, amplifying both potential returns and potential losses.
- What counts as a "normal" Debt-to-Equity ratio varies enormously by industry, since some industries are structurally more capital-intensive than others.