Debt/Equity Ratio
-
Net Debt/Equity
-
Leverage Rating
-
When Should You Use This?
Use D/E to screen for financial risk before buying a stock. High leverage amplifies both gains and losses. During recessions, highly leveraged companies are most likely to face financial distress.
How It Works
1
Enter Debt & Equity
Find total debt (short-term + long-term) and shareholder equity on the balance sheet.
2
Optional: Net Debt
Subtract cash to get net debt, which gives a more accurate picture of actual leverage.
3
Compare to Sector
D/E varies by industry. Utilities and REITs often run 1.5-2.0x; tech companies are often below 0.5x.
Frequently Asked Questions
Below 1.0 is generally safe. Below 0.5 is conservative. Above 2.0 is aggressive. But norms vary significantly by industry.
A company with $5B debt but $4B cash effectively has only $1B net debt. Net D/E gives a truer picture of financial risk.
No. Moderate debt can increase returns on equity (leverage). The key is whether the company can comfortably service its debt — check interest coverage ratio.
Negative equity means liabilities exceed assets. D/E ratio is meaningless in this case. It could indicate financial distress or aggressive buybacks (e.g., McDonald's, Starbucks).
D/E compares debt to shareholder capital. Debt-to-assets compares debt to total assets. Both measure leverage from different angles.