How this number is made
Debt to equity says how many dollars of debt sit on each dollar of equity. Above 1 means lenders have more in the business than the owners do, on the books you typed. What counts as debt is your choice. A lease the accountant left off the balance sheet is missing until you add it.
- Use interest-bearing debt if you want the lender’s ratio. Use all liabilities if you want the stricter one.
- Equity has to be positive.
Formula
Debt to equity = debt ÷ equity.
Worked example
With the figures already in the form, debt to equity is 0.50.
Questions
Is 0.5 healthy?
It depends on the business. A utility and a software firm do not share a normal ratio. The page will not grade it.
What about negative equity?
The ratio stops meaning “coverage” and starts meaning the books are underwater. The page refuses the division.