What Is the Debt-to-Equity Ratio?
What is D/E?
D/E shows how much of capital comes from lenders versus shareholders. Formula: Total Debt ÷ Shareholder Equity.
What's normal D/E by sector?
Software under 0.5. Branded consumer 1.0–2.0. Utilities 1.5–3.0. Banks much higher and use different ratios.
Why does leverage matter?
Debt has fixed costs. Leverage amplifies gains in good times and losses in bad times.
Frequently asked questions
Is more debt always bad?
No. Cheap debt funding profitable projects can boost shareholder returns. The danger is debt growing faster than profits.
Can a company have zero debt?
Yes. Many large software companies historically had no net debt.
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