Debt to equity

Also called: leverage, gearing, d/e

How much the company has borrowed compared with shareholders' money.

Formula

Debt / equity = Total debt ÷ Shareholders' equity

Worked example

1. Total debt = $4.0bn long-term + $1.0bn short-term = $5.0bn
2. Shareholders' equity = $8.0bn
3. $5.0bn ÷ $8.0bn

Result: 0.63

How to read it

Below 1 is usually comfortable. Higher debt raises returns in good times and risk in bad times. Utilities and banks normally run higher.

Worked example uses made-up figures for 'Example plc'

See it with real numbers: Any company page → (free account)