What is D/E Ratio?
Debt-to-Equity measures how much debt a company uses relative to shareholder equity. Higher ratio means more leverage and risk.
Think of it like this
Buying a house with a mortgage. If you put $100K down and borrow $300K, your D/E is 3.0. More debt means higher returns if things go well, but bigger problems if they don't!
Formula
D/E = Total Debt / Shareholder Equity- Total Debt: All loans and borrowings
- Shareholder Equity: What owners have invested
Why it matters
- Shows financial leverage and risk
- Higher D/E = higher risk and return potential
- Important for financial stability
- Affects cost of capital
What's a good value?
< 0.5
Conservative
Low debt, very safe
0.5-1.0
Moderate
Balanced approach
1.0-2.0
Aggressive
High debt, higher risk
> 2.0
Risky
Very high debt levels
Real-world example
Apple D/E: 1.8 - uses debt despite cash reserves. Utilities D/E: 1.5 - normal for capital intensive. Tesla D/E: 0.3 - low debt. Banks D/E: 10+ - normal for financial sector.
Things to watch out for
- Varies dramatically by industry
- Some businesses require high leverage
- Quality of assets matters
- Off-balance sheet debt not included
Screen US stocks by D/E Ratio in the app, and see which companies pass right now.