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Financial statements
Also called: D/E ratio, Debt-equity ratio, Leverage
Debt to equity is a company's total borrowings divided by its shareholders' equity. It shows how much the company has borrowed for every rupee its owners have put in.
Debt to equity = Total borrowings ÷ Shareholders' equity
A company owes ₹300 crore to lenders and its shareholders' equity is ₹600 crore. Its debt to equity is 0.5.
Banks and lenders borrow by design, so this ratio is not comparable between a bank and a manufacturer.
Debt magnifies both good years and bad ones. It is the most common reason an otherwise sound company gets into trouble.
Below half is comfortable for most businesses. Above two leaves little room for a bad year. Lenders and banks are the exception — borrowing is their raw material.
| Below 0.5 | Lightly borrowed. A bad year would not threaten the company. |
|---|---|
| 0.5 to 1 | Ordinary borrowing for a company that owns hard assets. |
| 1 to 2 | Heavily borrowed. Profits will swing with interest rates. |
| Above 2 | Very heavily borrowed, unless this is a lender. |
Rough conventions for an ordinary company; sectors differ. A range is not a buy or sell level.
Debt to equity is a company's total borrowings divided by its shareholders' equity. It shows how much the company has borrowed for every rupee its owners have put in.
Debt to equity = Total borrowings ÷ Shareholders' equity. A company owes ₹300 crore to lenders and its shareholders' equity is ₹600 crore. Its debt to equity is 0.5.
No. Debt to equity describes one aspect of a company, a price or a contract, and it is best read alongside other numbers and the business itself. Jivani Markets is a research and education platform; it does not give buy, sell or hold recommendations.