Expressed as a percentage, the debttoequity ratio shows the proportion of equity and debt a firm is using to finance its assets, and the extent to which shareholder's equity can fulfill obligations to creditors in the event of a business decline. A low debttoequity ratio indicates lower risk, since debt holders have less claim on the company's assets. A higher debttoequity ratio, on the other hand, shows that a company has been aggressive in financing its growth with debt, and there may be a greater potential for financial distress if earnings do not exceed the cost of borrowed funds.
To calculate debttoequity, divide total liabilities by total shareholders' equity:
DebttoEquity ratio = Total liabilities Ã· Total shareholders' equity
For example, the balance sheet for Amazon, Inc (AMZN) for the first quarter of 2017 shows (in millions) total liabilities of $59,295 and total shareholders' equity of $21,674. Using the above formula, the debttoequity ratio for KO can be calculated as:
Debttoequity = $59,295 Ã· $21,674 = 2.74 (or 274%)
This means that AMZN has $2.74 of debt for every dollar of equity. During the same quarter, eBay, Inc. (EBAY) had a debttoequity ratio of 1.14, and Netflix, Inc. (NFLX) had a ratio of 3.83. At 2.74, Amazon's debttoequity ratio is higher than eBay's but lower than Netflix's.
The debttoequity ratio can help investors identify companies that are highly leveraged and that may pose a higher risk. Investors can compare a company's debttoequity ratio against industry averages and/or other similar companies to gain a general indication of a company's equityliability relationship. As with other financial ratios, it is more useful to compare various companies within the same industry than to look at only one company, or to attempt to compare companies from different industries. In addition, investors should consider more than one ratio (or number) when making investment decisions since one ratio cannot provide a comprehensive view of the company.

What is considered a high debttoequity ratio and what does it say about the company? ...
Learn how to make sense of the debttoequity numbers of a company when looking for good investment opportunities. Read Answer >> 
What debt/equity ratio is typical for companies in the insurance sector?
Learn about the average debttoequity ratio among insurance providers. Find out about the ranges of D/E among insurers and ... Read Answer >> 
Which financial ratio best reflects capital structure?
Learn about the debttoequity ratio and why this metric is widely considered the most useful reflection of a company's capital ... Read Answer >> 
What debt/equity ratio is common for companies in the telecommunications sector?
Learn the average debttoequity ratio for the telecommunications sector and how including operating leases can substantially ... Read Answer >> 
What is the most widely used gearing ratio?
Understand the most commonly used gearing, or leverage, ratio used to evaluate a company's financial condition, the debt ... Read Answer >>

Investing
What Is Considered A High DebtToEquity Ratio?
The debttoequity ratio divides a firmâ€™s liabilities by its shareholdersâ€™ equity to measure its financial leverage. 
Investing
Debt Reckoning
Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money! 
Investing
Understanding Leverage Ratios
Large amounts of debt can cause businesses to become less competitive and, in some cases, lead to default. To lower their risk, investors use a variety of leverage ratios  including the debt, ... 
Investing
Useful Balance Sheet Metrics
These metrics can help you better understand the information found on balance sheets. 
Investing
4 Leverage Ratios Used In Evaluating Energy Firms
Analysts use specific leverage ratios to compare firms within an industry. A basic understanding of these ratios helps when evaluating oil and gas stocks. 
Investing
4 Simple Investing Ratios You Need To Know
Dissecting a companyâ€™s financial statements to uncover ways to make money is a challenging endeavor. Here are four ratios that can help. 
Investing
Analyzing WalMart's Debt Ratios in 2016 (WMT)
Analyze WalMart's debttoequity ratio, interest coverage ratio and cash flowtodebt ratio to evaluate the company's financial health and debt management. 
Investing
Analyzing Oracle's Debt Ratios in 2016 (ORCL, SAP)
Learn how the debt ratio, debttoequity ratio and debttocapital ratio are used to evaluate Oracle Corp.'s liabilities, equity and assets. 
Investing
6 Basic Financial Ratios And What They Reveal
Here's a brief introduction to six financial ratios every investor should be familiar with. 
Investing
Debt Ratios
Learn about the debt ratio, debtequity ratio, capitalization ratio, interest coverage ratio and the cash flow to debt ratio.

Optimal Capital Structure
The best debttoequity ratio for a firm that maximizes its value. ... 
Accounting Ratio
A way of expressing the relationship between one accounting result ... 
Leverage Ratio
Any ratio used to calculate the financial leverage of a company ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Debt/Equity Ratio
Debt/Equity Ratio is debt ratio used to measure a company's financial ... 
Long Term Debt To Total Assets Ratio
A measurement representing the percentage of a corporation's ...