Debt/Equity Ratio

Business, Legal & Accounting Glossary

Definition: Debt/Equity Ratio

Quick Summary of Debt/Equity Ratio

A comparison between the company’s total assets and its short- and long-term debts. This ratio is often used to measures a company’s ability to borrow and repay money, or its future prospects.

Full Definition of Debt/Equity Ratio

The debt/equity ratio is a capitalization ratio. The debt/equity ratio equals the sum of company’s bonds plus preferred stock divided by the sum of its common stock at par plus capital surplus plus retained earnings. The debt/equity ratio can be found in a company’s income statement. The debt/equity ratio is used to measure credit strength and is one indicator of a company’s bankruptcy risk. The debt/equity ratio indicates the amount by which a company is financed by credit, or the total amount owed compared to the total amount owned. A higher debt/equity ratio generally means a company has been actively financing its growth with debt. A debt/equity ratio exceeding 100% means that outside capital by lenders exceeds the capital provided by ownership. The average debt/equity ratio varies by industry and what is a normal debt/equity ratio for one company may be high for a company in a different industry.

Examples of Debt/Equity Ratio in a sentence

Acme has a very low debt-to-equity ratio, so it is an attractive company for investors who are looking at long-term investment portfolios.
Many startup companies have a high debt-to-equity¬ ratio, but are expected to reverse their initial numbers within the first five years.

Cite Term

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Page URL
Modern Language Association (MLA):
Debt/Equity Ratio. Payroll & Accounting Heaven Ltd. September 25, 2021
Chicago Manual of Style (CMS):
Debt/Equity Ratio. Payroll & Accounting Heaven Ltd. (accessed: September 25, 2021).
American Psychological Association (APA):
Debt/Equity Ratio. Retrieved September 25, 2021, from website:

Definition Sources

Definitions for Debt/Equity Ratio are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 13th February, 2020 | 3 Views.