Debt to equity (D/E)
How much the company has borrowed for every unit of shareholders money.
Leverage decides whether a bad year is a bad year or the end. It is the first thing to check on anything cyclical.
How it is computed here
Total debt / shareholders equity
Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it. Filed under health. Lower is the stronger reading, other things equal.
The readings, and where the lines come from
| Range | Reading |
|---|---|
| below 0.50 | Conservative |
| 0.50 to 1.00 | Within Graham's industrial limit |
| 1.00 to 2.00 | Leveraged |
| 2.00 and above | Heavily leveraged |
Graham, The Intelligent Investor (rev. ed. 1973), ch. 14 defensive-investor criteria. Graham asked industrial companies to keep debt at or below tangible net worth, and allowed utilities roughly twice that.
When it misleads
- Exactly zero is a real measurement here: a debt-free balance sheet genuinely reports 0.0.
- Meaningless when shareholders equity is negative; shown as "n/m" with the reason.
- Operating leases and pension deficits are debt in substance and may not be in this number.
- A bank borrows as its raw material, so the ratio says nothing about a bank's safety.
Not meaningful for banks, insurers: the product prints n/m with the reason rather than a number for them.
Reads differently for regulated utilities, REITs: the figure is shown with that caveat attached.
Questions
How is debt to equity calculated?
Total debt / shareholders equity. Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it.
What does debt to equity tell a value investor?
Leverage decides whether a bad year is a bad year or the end. It is the first thing to check on anything cyclical.
When does debt to equity mislead?
Exactly zero is a real measurement here: a debt-free balance sheet genuinely reports 0.0. Meaningless when shareholders equity is negative; shown as "n/m" with the reason. Operating leases and pension deficits are debt in substance and may not be in this number. A bank borrows as its raw material, so the ratio says nothing about a bank's safety.