Debt-to-Equity Ratio
Overview
The debt-to-equity (D/E) ratio measures a company's financial leverage by comparing total debt to shareholders' equity, providing a quick read on balance sheet risk. Understanding leverage is critical for anyone investing in stocks, particularly during periods when central banks are raising interest rates and refinancing costs are climbing. This guide shows you how to assess whether a company's debt load is sustainable, how leverage impacts risk and return, and why industry context matters when interpreting D/E. Use our stock screener to filter by debt-to-equity and pair the results with interest coverage analysis for a fuller picture.
Key Takeaways
- D/E = Total Debt / Shareholders' Equity.
- A D/E above 2.0 is generally considered highly leveraged (varies by industry).
- Utilities and REITs naturally carry higher D/E than tech companies.
- Rising D/E combined with falling interest coverage is a warning sign.
Practical Tips
- Compare D/E within the same industry — cross-sector comparisons are misleading.
- Check interest coverage ratio (EBIT / Interest Expense) alongside D/E.
- During rate-hiking cycles, companies with high D/E face rising refinancing costs.
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