Debt-to-equity compares what a company has borrowed with the equity its shareholders have in it, on the books.
Formula
debt-to-equity = total debt / shareholders' equity
Both are as reported on the same balance sheet date. Total debt is long-term debt, its current portion and short-term borrowings; shareholders' equity excludes non-controlling interests.
Reading it
- A ratio of 1 means debt equals book equity.
- Other sources often define debt-to-equity as total liabilities divided by equity, which gives a higher figure. Check the definition before comparing numbers from different places.
- Negative equity. If equity is negative, the formula gives a negative ratio. That does not mean low debt: it means equity is below zero, and the ratio no longer measures what it usually does.
- Industries differ. Utilities and real estate companies usually carry far more debt for their equity than software companies.
When it says "not reported"
Total debt or shareholders' equity is not reported for the date, or equity is zero.