FINANCIAL BASICS: DEBT TO EQUITY RATIO

The Debt to Equity ratio tells us how much debt, or leverage, a company has compared to equity, i.e. how much of the company's funding comes from debt versus equity.

If a company has higher debt than equity, the ratio will be greater than one, and the company may be considered to have a high level of leverage. For instance, if its debt to equity ratio is six, the company has $6 of debt for every $1 of equity. A high leverage ratio may appear too risky for lenders to give more funds. That said, lenders will consider other ratios too.