Financial health
Debt-to-Equity ratio
D/E
What it is
Compares total debt to shareholder equity. Measures how much the company is financed by debt versus shareholders. A high ratio means "leveraged"; a low ratio means "self-financed".
How to read it
Reasonable debt can amplify returns (financial leverage). Too much debt becomes dangerous when earnings fall: interest is still owed while margins contract. That's what kills companies during crises.
Common reference points
- Very low debt< 0.3
- Reasonable debt0.3 – 1.0
- High debt1.0 – 2.0
- Over-leveraged — risky> 2.0
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
Norms vary hugely by sector. Utilities and REITs structurally carry lots of debt (1.5-3.0). Software companies almost never do. Compare to sector.
Other measures — Financial health
Educational content. Polaris is not a registered investment adviser and makes no recommendation.