Debt-to-equity (D/E)
AccountingDefinition
How much of the company's operations are funded by borrowing compared to money raised from shareholders. A high D/E means the company is heavily leveraged, which boosts returns when things go well but amplifies losses (and risks bankruptcy) when they do not.
Ratios vary enormously by industry. Banks and utilities naturally run high D/E. Tech companies typically run very low. Below 1.0 is usually conservative. Above 2.0 is aggressive. Compare within the same industry, not across.
Ratios vary enormously by industry. Banks and utilities naturally run high D/E. Tech companies typically run very low. Below 1.0 is usually conservative. Above 2.0 is aggressive. Compare within the same industry, not across.
Formula
D/E = Total debt divided by Total shareholders equity
Example
A company has $200M in debt and $400M in shareholders' equity. D/E = 200 / 400 = 0.5. Pretty conservative. Another has $600M in debt on $300M of equity. D/E = 2.0. A much more leveraged bet.