Debt-to-Equity

Debt to equity is a measure used to compare the financials of a company to others within the same industry along with measuring its leverage. This is calculated by taking the companies debt and dividing it by the equity in the company, giving you a number expressed in a percentage.

Updated over a year ago
View currently updated edicational stories
Filter Debt to Equity

This is a measure of risk many people use in their research to gauge how leveraged the company is and if there is risk by having too much debt on their books. For a quick understanding, the higher the number the more debt the company has on the books and this could be the cause of growth or stress. The lower the number, the less debt the company has and is not as leveraged, meaning they do not owe substantial sums of money.

Taking is a step further, some of the reasons you may not want to invest in a company that has a high debt to equity number is if the markets begin to slow and sales are affected, they may not be able to pay back their loans, leading to a possible bankruptcy. Secondly, if the number is high, they may be depending on lending to keep cash flow healthy, which is not a sustainable growth model.

On the other side, if the number is low, this means they are not leveraged and are either doing well enough to not need debt or lenders may not lend to them. You will have to research this because the answer would dictate where you go from there. A little debt is alright, but you do not want the company to be over leveraged.

Another way to use this ratio is to compare it to others within the same industry, that way you can see the average of the whole industry. If it is too leveraged, you may look elsewhere within the industry to give you less risk and more value for your dollar.

This is typically one of the most widely used ratios and should be at the front of your fundamental research tool kit. Be sure to look under the hood and find what is driving the result of your equation because there may be more than just the number. Remember that this takes in data and no human emotion, so if you get a feel the company is going one direction, take that into account to help give you a well rounded opinion before jumping into an investment.

Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Please refer to our Terms of Use for any information regarding our disclosure principles.

Would you like to provide feedback on the content of this article?

You can get in touch with us directly or send us a quick note via email to editors@macroaxis.com

Did you try this?

Run Financial Widgets Now

   

Financial Widgets

Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets
All  Next Launch Module
Check out Investing Opportunities. You can also try Bond Directory module to find actively traded corporate debentures issued by US companies.

Other Tools for Investor Private

When running Investor Education price analysis, check to measure Investor Education market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Investor Education is operating at the current time. Most of Investor Education value examination focuses on studying past and present price action to predict the probability of Investor Education future price movements. You can analyze the entity against its peers and financial market as a whole to determine factors that move Investor Education price. Additionally, you may evaluate how the addition of Investor Education to your portfolios can decrease your overall portfolio volatility.
Portfolio Diagnostics
Use generated alerts and portfolio events aggregator to diagnose current holdings
Go
Content Syndication
Quickly integrate customizable finance content to your own investment portal
Go
Instant Ratings
Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Bollinger Bands
Use Bollinger Bands indicator to analyze target price for a given investing horizon
Go
Portfolio File Import
Quickly import all of your third-party portfolios from your local drive in csv format
Go