Corporate FinanceFinancial Glossary
Debt-to-Equity Ratio
Definition
A financial leverage ratio calculated by dividing total debt by total shareholders' equity. A ratio of 1.0 means the company has equal amounts of debt and equity financing. Higher ratios indicate greater reliance on borrowed money.
Why It Matters
Companies with debt-to-equity ratios above 2.0 carry significant financial risk — during economic downturns, high interest payments can erode profits and even lead to default. Banks and NBFCs naturally have higher ratios (8-12x) because their business model involves lending borrowed money. For manufacturing and IT companies, ratios above 1.5 are generally considered risky.