Debt to Equity
Debt to Equity = Total Liabilities/Equity
Debt to Equity shows how much debt the company has in relation to its equity.
The key figure is used to see the company's financial risk. Debt to Equity can be thought of as the inverse of Solvency.
Some industries (e.g. oil & gas, banks) with a high degree of loans often have a high Debt to Equity. Always compare with companies within the same industry.
Things to keep in mind
- Low value is good.
- Debt to Equity = 3 shows that there is three times as much liability as there is Equity.
- ADebt to Equity less than 1 shows that there is more Equity than there are liabilities.
- A high Debt to Equity shows that the company has low solvency.