Debt-to-equity ratio
Financial Accounting glossary · Financial Statement Analysis & Ratios
Definition
Total debt / total stockholders' equity; gauges financial leverage.
Debt-to-equity ratio in plain English
This ratio shows how much a company runs on borrowed money versus the owners' own money. You divide total debt by total stockholders' equity (equity = the owners' stake, what's left over after subtracting everything the company owes from everything it owns): debt-to-equity = total debt / total equity. A high number means the company leans heavily on loans, which can boost profits but is riskier if things go wrong — like buying a house with a tiny down payment and a huge mortgage. "Leverage" is just the finance word for using borrowed money to do more than your own cash alone would allow.
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