Debt Equity Ratio

The Debt-Equity Ratio shows how much a company is financed by borrowed funds (debt) versus owners’ funds (equity).

It is an important indicator of a company’s financial risk and stability. A higher ratio means more reliance on debt, which can increase risk.

Formula

👉 Debt-Equity Ratio = Total Debt ÷ Shareholders’ Equity

Why Debt-Equity Ratio Matters

• Helps assess financial risk
• Used by investors and lenders
• Indicates capital structure

Interpretation

• High D/E Ratio: Higher risk, more debt dependency
• Low D/E Ratio: Safer, more equity-based

Ideal Ratio

• Varies by industry
• Generally 1:1 or lower is considered balanced (context-dependent)

Debt-Equity Ratio vs Debt Ratio

• D/E Ratio: Debt vs equity
• Debt Ratio: Debt vs total assets

"If a company has ₹50 crore debt and ₹100 crore equity: 👉 D/E Ratio = 0.5"