Long-term investing

Debt to equity

Defined in 1 lesson · Updated October 17, 2026

Definition

Total debt ÷ shareholders’ equity. A fast grower that borrows heavily has less room for a bad year.

Example

Say company XYZ has $600 million of total debt and $400 million of shareholders’ equity, a debt-to-equity ratio of 1.5, while a rival with $100 million of debt on the same equity sits at 0.25. If a bad year brings XYZ a $150 million loss, its equity falls to $250 million and its ratio jumps to 2.4, just when lenders are watching most closely.

Hypothetical numbers, for illustration only.

Two panels of quarterly EPS growth bars labeled Q1 to Q4: on the left, accelerating, with +10%, +20%, +35% and +50%; on the right, decelerating, with +50%, +35%, +20% and +10%.

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