What ratio compares total debt to total equity?

What ratio compares total debt to total equity? The debt-to-equity ratio compares a company’s borrowing with shareholders’ equity.

The basic formula is total debt divided by total equity. Analysts use it to judge how heavily a business relies on creditor financing rather than shareholder capital. A higher result generally signals greater financial leverage and potentially greater financial risk, although acceptable levels vary widely by industry.

The numerator requires care. Some calculations use only interest-bearing debt, while others use total liabilities; long-term-debt-to-equity is a narrower variant. Equity may also be measured at book value from the balance sheet or, for publicly traded companies, at market value. Those choices can produce different results.

A common mix-up is treating this ratio as identical to the leverage ratio. “Leverage ratio” is a broader label for several measures, whereas debt-to-equity names the specific relationship between debt and equity. The debt ratio instead compares liabilities or debt with assets. Because assets equal liabilities plus equity, these ratios are related but not interchangeable.