Debt and bankruptcy risk · updated October 21, 2026
What is the debt-to-equity ratio and how is it calculated
Debt-to-equity shows how many dollars the company has borrowed for every dollar put in by shareholders. A ratio of 1 means the company is funded half by debt and half by shareholders.
Debt / equity formula
- Financial debt
- Bank loans and bonds, short and long term.
- Shareholders' equity
- Assets minus liabilities, from the latest balance sheet.
Worked example
A company has $6 billion of debt and $8 billion of equity.
For every dollar of shareholders' money, the company has borrowed 75 cents.
How to read debt / equity
Banks have ratios of 8-10, because customer deposits count as debt. For banks, other measures (core capital) are used.
When debt / equity can fool you
Small equity after buybacks: the ratio jumps without debt going up. Leases: for some companies, rental contracts are hidden debt.
Related terms
Questions about debt / equity
Is debt bad?
Not necessarily. Moderate, cheap debt can boost shareholders' profit. It becomes dangerous when profit falls and the interest stays.
These explanations are for information only. They are not a recommendation to buy or sell.
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