Debt-to-Equity Ratio

What is the Debt-to-Equity Ratio?

The debt-to-equity ratio shows how much of a company is financed by borrowing versus owners’ capital. A D/E of 1 means equal debt and equity; 0 means debt-free.

How to interpret it

Low D/E means a conservatively financed, resilient business. High D/E can boost returns in good times but magnifies losses and raises bankruptcy risk in downturns. Acceptable levels vary hugely by industry.

What’s a good D/E?

Below 0.5 is conservative; up to 1 is common. Above 1.5–2 is high for most industries (banks and NBFCs are a special case and measured differently).

Common mistakes

• Comparing D/E across industries — capital-intensive sectors run higher naturally.
• Treating all debt as bad — cheap debt can be value-accretive.
• Applying standard D/E benchmarks to financial companies.