Debt-to-equity ratio
Also called: debt to equity, D/E ratio
Total borrowings divided by shareholders' equity. It shows how much a company relies on lenders compared with its owners' money.
A debt-to-equity ratio of 0.6 means the company has borrowed ₹0.60 for every ₹1 of equity. Higher ratios mean more interest to pay and less room for bad years.
What counts as high depends on the industry: lenders and utilities normally carry far more debt than software companies.
Example
Borrowings of ₹300 crore against equity of ₹500 crore give a debt-to-equity ratio of 0.6.
Learn more in these lessons
- The balance sheetHow do you read a company's balance sheet?
- Debt-to-equity and net debtHow do you judge whether a company has too much debt?
- Weighted average cost of capital (WACC)What is WACC, and when should you use it to value a company?
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