Series 79: Debt-to-Equity Ratio

Debt-to-Equity Ratio

The debt-to-equity (D/E) ratio, or debt ratio, compares the proportions of a company’s assets that are financed by borrowing versus shareholder investment. Average debt-to-equity ratios vary between industries and are usually highest in capital-intensive industries. A company that has a high D/E ratio for its industry is not necessarily in terrible financial shape, but may be vulnerable to fluctuations in interest rates, which would drive up its loan servicing costs. A high D/E ratio may also hamper a company’s ability to incur additional debt, which could cause liquidity problems.

To calculate the total debt-to