Debt-to-Equity Ratio

Overview

The Debt to Equity Ratio is a metric that measures how your organization is funding its growth and how effectively you are using shareholder investments. A high Debt to Equity Ratio is evidence of an organization that’s fuelling growth by accumulating debt. This is a common practice, as outside investment can greatly increase your ability to generate profits and accelerate business growth. Reaching too far, however, can backfire and leave the company bankrupt. As such, a high Debt to Equity Ratio is often interpreted as a sign of risk.

Formula

Debt to Equity (D/E) = (Total Liabilities) / (Shareholders Equity)

Note: Total Liabilities and Shareholder Equity can be found on the balance sheet.

See also

• Return on Equity