What it is
The debt-to-equity (D/E) ratio is a solvency metric that indicates the proportion of equity and debt a company uses to finance its assets. It is calculated by dividing total liabilities by shareholders' equity. A higher ratio means the company relies more on debt funding relative to equity, which can imply greater financial risk, especially if interest rates rise or economic conditions worsen.
Investors monitor the D/E ratio to assess a company's financial risk and stability. A high ratio might make a company more vulnerable during economic downturns or make it harder to secure additional financing. Conversely, a very low ratio might suggest underutilization of leverage to boost returns. Analysts compare a company's D/E ratio to industry averages and historical trends to gauge its capital structure health.
Why it matters
This ratio helps you understand how much a company relies on debt versus its own capital. It's crucial for assessing financial risk and stability.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice