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 ÷ 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 ÷ $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 the difference between the capital adequacy ratio and the leverage ratio?
Explore what differentiates the capital adequacy ratio from any one of several leverage ratios used for equity evaluation ... Read Answer >> 
Which leverage ratios are most useful for analyzing manufacturing companies?
See which leverage ratios investors and creditors are likely to use when analyzing the debt burdens for manufacturing companies. Read Answer >> 
What is the difference between the debt ratio of a company and the debt ratio of ...
Discover the different financial evaluation measures that are most commonly applied to individuals and corporations, respectively. 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 >> 
Which financial metrics are best for analyzing companies in the chemicals sector?
Learn about some of the key financial metrics that investors and market analysts commonly use to evaluate companies in the ... Read Answer >>

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
Debt Ratios
Learn about the debt ratio, debtequity ratio, capitalization ratio, interest coverage ratio and the cash flow to debt ratio. 
Investing
Analyzing General Electric's Debt Ratios in 2016 (GE)
Evaluate GE's debt picture using the most important metrics for a largecap conglomerate, including the debttoequity (D/E) ratio and the interest coverage ratio. 
Investing
Analyzing IBM's Debt Ratios in 2016 (IBM)
Look over the debt ratios for the IBM Corporation, such as its debttoequity ratio, its interest coverage ratio and its cash flow to debt ratio. 
Investing
Analyzing Pepsico's Debt Ratios in 2016 (PEP)
Learn about PepsiCo and its financial leverage by looking at its debttoequity ratio, interestcoverage ratio and operating cash flowtodebt ratio. 
Financial Advisor
How to Pick the Best Dividend Stocks
Dividend stocks can make you rich, but you have to be patient. 
Financial Advisor
The Debt To Equity Ratio
The debt to equity ratio identifies companies that are highly leveraged and therefore a higher risk for investors. Find out how this ratio is calculated and how you can use it to evaluate a stock.

Optimal Capital Structure
The best debttoequity ratio for a firm that maximizes its value. ... 
Leverage Ratio
A leverage ratio is any one of several financial measurements ... 
Current Ratio
The current ratio is a liquidity ratio that measures a company's ... 
Capitalization Ratios
Capitalization ratios are indicators that measure the proportion ... 
Cash Asset Ratio
The cash asset ratio is the current value of marketable securities ... 
LongTerm Debt To Capitalization Ratio
A ratio showing the financial leverage of a firm, calculated ...