What Is Debt-to-Equity Ratio
Debt-to-equity ratio explained: the total-liabilities-over-equity formula, what a healthy D/E looks like, and why it varies by industry.
Last updated: 2026-07-25
The debt-to-equity ratio, or D/E, measures how much of a business is financed by debt versus the owners' capital. Lenders and investors use it to judge financial risk: a company that leans heavily on borrowing has less cushion if results turn down.
How it is calculated
Divide total liabilities by total shareholder equity. A company with $2 million in liabilities and $1 million in equity has a D/E of 2.0 — it owes twice what the owners have put in. A ratio of 1.0 means debt and equity are balanced.
What counts as healthy
- Below 1.0 — conservative; the business relies mostly on its own capital.
- 1.0 to 2.0 — common and generally acceptable for many industries.
- Above 2.0 — higher leverage and higher risk, though normal in capital-heavy sectors.
Why industry matters
There is no universal target. Capital-intensive businesses like utilities or real estate routinely run high ratios because their assets are stable and financeable, while a software firm with few hard assets is expected to carry far less debt. Always compare a company's D/E to its peers, not to a fixed rule.
Calculate your own ratio and track it over time with the calculators below.