How to Analyze Debt to Equity Ratio

Published by StockScore Editorial • Reading time: 4 mins

The Debt-to-Equity (D/E) Ratio evaluates a company's financial leverage. It shows how much the company is funded by loans (debt) versus owner resources (equity).

            Debt to Equity = Total Liabilities / Shareholders' Equity
          

How to interpret D/E

D/E < 0.5: Highly conservative, safe balance sheet. The company has plenty of net value and is unlikely to face loan defaults.
D/E between 0.5 and 1.0: Moderate, standard leverage typical for manufacturing firms.
D/E > 1.5: Highly leveraged. A large portion of operating profits goes to bank interest payments. Safe to avoid for beginners.