How much has the company borrowed compared with its owners' money?
Debt-to-Equity Ratio
Lesson 7 of 11 · Safety
Debt-to-equity compares money borrowed with the owners' money in the business.
In everyday life
Buying a ₹10 lakh car with ₹8 lakh of your savings and a ₹2 lakh loan is safe. Buying it with ₹2 lakh of savings and an ₹8 lakh loan is risky if you lose your job.
How it's worked out
Example: Sunrise Tea, a made-up company that sells packaged tea across India.
In words: ₹0.25 borrowed for every ₹1 of the owners' money.
Try it yourself
Move the sliders and watch the answer, the picture and the verdict change together.
₹0.25 borrowed for every ₹1 of the owners' money.
Rough guide
- Low
- Moderate
- High
What's a good number?
- Low
Up to 0.5x
- Moderate
0.5x to 1x
- High
Above 1x
Not for banks and lenders: borrowing is their raw material. Power and road companies also run on more debt by design.
Key number in the sector guides for Pharma.
How to read it
Good signs
- Debt falling year after year while the business grows.
- Close to zero: the company can survive a bad year without lenders' help.
Watch out for
- Debt rising faster than profit.
- Borrowing to pay dividends: a sign the business can't fund them itself.
Read it with
For learning only. Example companies are made up, and the rough guides are rules of thumb, not targets. Nothing here is advice to buy or sell any stock.