The Debt-to-Equity (D/E) ratio is a fundamental financial leverage metric that compares a company's total financial debt — including short-term borrowings, long-term loans, debentures, and bonds — to its total shareholders' equity, indicating the proportion of business financing sourced from creditors versus shareholders. It is calculated as: D/E Ratio = Total Debt ÷ Shareholders' Equity. A lower D/E ratio indicates conservative financing with lower financial risk — the company relies more on equity than debt to fund operations and growth. A higher D/E ratio signals greater financial leverage — amplifying returns on equity during profitable periods but increasing the risk of financial distress during downturns when interest obligations must still be met regardless of business performance. In India, sector context is critical for interpreting the D/E ratio — capital-intensive industries like infrastructure, power, and real estate typically operate with higher D/E ratios compared to asset-light businesses like IT services and FMCG, where strong cash flows make high leverage unnecessary. Investors use the D/E ratio alongside the Interest Coverage Ratio to assess whether a company's debt is comfortably serviced by its operating earnings.
For android only
