Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• DEBT-TO-EQUITY RATIO
  
  You find a company's debt-to-equity ratio by dividing its total long-term debt by its total assets minus its total debt. You can find these figures in the company's income statement provided in its annual report. The ratio indicates the extent to which a company is leveraged, or financed by credit. A higher ratio is a sign of greater leverage, which may mean a fast-growing company or one that is overextended. Average ratios vary significantly from one industry to another, so what is high for one company may be normal for another company in a different industry. From an investor's perspective, the higher the ratio, the greater the risk you take in investing in the company. But your potential return may be greater as well if the company uses the debt to expand to its sales and earnings.
  
  Back