Metric · Leverage

Debt-to-Equity Ratio Explained

Q: What is the difference from the net-debt-to-EBITDA ratio?

Debt-to-equity shows the balance-sheet structure (debt vs. equity), while net debt/EBITDA shows how quickly debt could be repaid from operating earnings. The two perspectives complement each other.

The debt-to-equity ratio (D/E) relates a company's total debt to its equity. It shows how heavily a company is financed with debt relative to its own capital.

Updated 20266 min read

Formula

Debt-to-equity = Total debt ÷ Equity

< 0.5Low leverage

0.5–1.5Moderate leverage

> 1.5High leverage

Guideline values, industry-dependent, illustrative

The formula in detail

The components of the formula at a glance.

Numerator

Total debt

All of the company's liabilities, short- and long-term.

Denominator

Equity

The company's book equity.

Calculator

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Total debt (€m)Equity (€m)

Result debt-to-equity

Moderate leverage

0.8

A value below 0.5 means a company uses substantially more equity than debt, a structurally conservative financing profile.

A value above 1.5 shows heavy reliance on debt financing, which can become a risk during rate hikes or downturns.

Capital-intensive industries (utilities, real estate) structurally tolerate higher values than margin-rich, less capital-intensive business models.

Used in these strategies

Piotroski F-Score (9-Point Check)Nine hard balance-sheet criteria: separating substance from downward spirals.Altman Z-Score: Stress TestThe bankruptcy early-warning system: five balance-sheet ratios, one risk score.

Frequently asked questions

What is a good debt-to-equity ratio?

As a rough guideline, below 0.5 counts as low and above 1.5 as high. Capital-intensive industries like utilities or real estate structurally sit higher without that automatically being risky.

What is the difference from the net-debt-to-EBITDA ratio?

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Not investment advice. This explanation is for informational purposes only and does not constitute a recommendation to buy or sell securities.

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