Measure your business financial leverage by comparing total debt to total equity. Understand what your ratio means for lenders and investors.
All loans, credit lines, bonds
Owner equity + retained earnings
Debt-to-Equity Ratio
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The debt-to-equity ratio measures how much debt your business uses relative to owner equity. A ratio of 1.0 means equal debt and equity. Below 1.0 indicates conservative financing; above 2.0 suggests high leverage. Lenders and investors use this ratio to assess risk. The ideal range depends on your industry.
Generally, below 1.0 is considered conservative and safe. Between 1.0-2.0 is moderate. Above 2.0 indicates high leverage. However, capital-intensive industries like manufacturing naturally have higher ratios than service businesses.