The debt-to-equity ratio (D/E) compares a company’s total liabilities to its equity and can be used to assess the extent to which it is dependent on debt.
D/E ratios vary by industry and are best used to compare direct competitors or measure a company’s exposure to debt over time.
Among peers, a higher D/E ratio implies more risk, while a particularly low ratio may indicate that the business is not leveraging for expansion.
Investors often modify the D/E ratio to include only long-term debt because they carry more risk than short-term debt.