Debt-to-Equity Ratio Formula

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Debt-to-Equity Ratio Calculator

The debt-to-equity ratio compares what a company owes with what its owners have put in and retained. It is the main measure of financial leverage: a higher ratio means the business relies more on borrowed money, which magnifies returns to shareholders in good years and losses in bad ones, and raises the risk of financial distress.

How to use the formula

Definitions vary. The broad version divides total liabilities by shareholders’ equity. A narrower version, common in credit analysis, uses only interest-bearing debt (loans, bonds and leases) and leaves out payables and other operating liabilities. Say which one you are using; this calculator accepts either figure in the numerator.

With total liabilities of 450,000 and equity of 300,000 the ratio is 1.5, meaning creditors have supplied 1.50 for every 1.00 from shareholders. Capital-intensive industries such as utilities often run above 2, while software firms may be close to zero. If equity is negative, the ratio is not meaningful. Related measures are the debt ratio and the equity multiplier; the ability to service the debt is measured by interest coverage.

Frequently asked questions

What is the debt-to-equity ratio formula?

D/E = total liabilities ÷ total shareholders’ equity (or total debt ÷ equity in the narrower definition).

What is a good debt-to-equity ratio?

It depends on the industry. Below 1 is conservative for most sectors; utilities and banks normally operate much higher.

How is D/E related to the debt ratio?

D/E = debt ratio ÷ (1 − debt ratio) when total liabilities are used.

What if equity is negative?

The ratio becomes negative and is not meaningful: liabilities exceed assets.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.