Debt-to-equity ratio
Principles of Finance glossary · Cost of Capital & Capital Structure
Definition
Total debt divided by total equity; a capital-structure leverage measure.
Debt-to-equity ratio in plain English
This is the same idea as debt-to-capital but framed as a head-to-head: how much does the company owe (debt) compared to how much the owners actually have in it (equity)? You just divide the borrowed money by the owners' money, so a ratio of 2 means "two dollars borrowed for every one dollar of owners' skin in the game." Because there's no fixed ceiling here (it can shoot past 1 to 3, 5, or more), it dramatizes heavy borrowing more vividly than debt-to-capital does. Lenders and investors watch it because a company drowning in debt relative to its own cushion is fragile when trouble hits.
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