Debt-to-Equity Ratio Explained

The debt-to-equity ratio (D/E) shows how much a company funds itself with borrowed money versus owners’ money.

Debt-to-equity = total debt ÷ shareholders’ equity

A D/E of 0.5× means 50 cents of debt for every $1 of equity. 2× means twice as much debt as equity — a much more leveraged, riskier balance sheet.

How to read it

• Under 1× — conservative; the company isn’t over-reliant on debt.
• 1–2× — moderate; common and often fine.
• Over 2× — heavily leveraged; great when business is good, dangerous in a downturn because interest and repayments don’t wait.

What counts as “too much” varies by industry — utilities and banks safely carry far more debt than a software company. High leverage also amplifies return on equity , which can make a risky company look more profitable than it is. For a fuller distress read, see the Altman Z-score .