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Financial Encyclopedia

Debt / Equity


Debt to Equity ratio - a ratio that reflects the ratio of total business liabilities to equity.


Suppose a company has $2 million of long-term liabilities and $1 million of short-term liabilities. The shareholders of the company have invested $1 million.

Debt / Equity = ($2 + $1)/$1 = 3x

More detailed

Debt/Equity = (Long Term Liabilities + Short Term Liabilities) / Equity

This ratio measures the extent to which a company's assets are funded by the debt and equity of the business.
A low debt-to-equity ratio usually implies a more stable business. Companies with a higher ratio are considered riskier for lenders and investors than companies with a lower ratio. Therefore, it is important to compare the indicator with industry averages.


According to Ranks methodology, this indicator is analyzed in the Financial position block and used along with other indicators to calculate the score.

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