Formula
Debt-to-Equity Ratio = Total Debt ÷ Shareholder’s Equity
Calculation Example
If a company has $2,000,000 in total debt and $1,000,000 in shareholder equity, D/E Ratio = 2,000,000 ÷ 1,000,000 = 2.0
Data Source
Financial statements, balance sheets
Tracking Frequency
Quarterly, Annually
Optimal Value
Should be balanced; too high indicates excessive debt, too low may suggest underutilized leverage.
Minimum Acceptable Value
A D/E ratio above industry norms suggests high financial risk.
Benchmark
Tech ~0.5-1.5, Manufacturing ~1.5-3.0, Banking ~8-12
Recommended Chart Type
Bar chart (to compare across industries), Line chart (to track trends)
How It Appears in Reports
Displayed in financial reports to assess capital structure.
Why Is This KPI Important?
Indicates the proportion of debt financing relative to equity, guiding investment decisions.
Typical Problems and Limitations
Does not consider cost of debt, industry differences in leverage usage.
Actions for Poor Results
Optimize debt levels, refinance at lower interest rates, balance debt and equity financing.
Related KPIs
Return on Equity (ROE), Quick Ratio, Interest Coverage Ratio
Real-Life Examples
A tech firm improved its D/E ratio by issuing equity instead of taking on additional debt.
Most Common Mistakes
Ignoring industry standards, assuming lower debt is always better.
