Debt to Equity Ratio

A printable cheatsheet with calculations
and notes

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Debt to Equity Ratio

Debt to Equity Ratio =

Total Liabilities

Total Equity

AKA: Leverage Ratio

INTERPRETATION

Shows the percentage of company financing that comes from creditors and investors.

Business owners, managers, and other interested parties use it to determine how much debt is used to run a business.

Note: expanded calculation

Divide total liabilities by total equity

EXAMPLE

M&M has $100,000 of bank lines of credit and a $500,000 mortgage on its property. The shareholders of the company have invested $1.2 million.

Debt to Equity Ratio = ($100,000 + $500,000) / $1.2M = .5

A ratio of 0.5 means that M&M has $0.50 of debt for every $1.00 in equity.

BENCHMARK: HA, PG, EB, ROT

Different industries have different debt-to-equity benchmarks, but a lower D/E ratio is generally preferred as it indicates that less creditor financing (bank loans) is used.

If a company has a debt-to-equity ratio of 1, investors and creditors have an equal stake in the business.

Debt to Equity Ratio:

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.