Debt to equity

Debt to equity is the plainest statement of how much of the business is funded by lenders rather than owners. At 0.5 the owners have twice as much at stake as the banks; at 3.0 the lenders are the senior partner and the owners are holding an option.

Leverage does not make a company worse, it makes it more sensitive. The same fall in profit produces a much larger fall in what is left for shareholders, in both directions.

Total debt of $600m against shareholders' equity of $750m.

1. 1600 / 750 = 0.8.

Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.

• Compare within an industry. Utilities and property companies carry multiples that would be alarming at a software company and are ordinary for them.
• Read it with interest coverage. The ratio says how much is owed; coverage says whether it can be paid, and coverage is the more urgent question.
• Watch the direction. Leverage rising while profits are flat is the pattern that ends badly.

• Book equity is an accounting figure, so buybacks and accumulated losses shrink the denominator and inflate the ratio without new borrowing.
• It ignores cash. A company with $10bn of debt and $9bn of cash is not what this ratio suggests, which is what net debt is for.
• Leases, pensions and other debt-like obligations sit outside it under most treatments.

Total debt against equity carries 20% of the scorecard's Risk category. The Financials tab shows a related but deliberately different figure — total LIABILITIES to equity, which includes payables and provisions as well as borrowings and is therefore always the larger number. The two are labelled distinctly rather than being treated as the same ratio, because short-term borrowings are not separately tagged in the filings pipeline and a single blended figure would quietly mean neither thing.

The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.