Debt/equity ratio

Tax Glossary Definition

The Debt/Equity Ratio (D/E Ratio) is a key financial metric that measures a company's capital structure by comparing its total debt to total shareholders’ equity.
It shows how much of the company's financing comes from borrowed funds versus owner’s investment.

Formula

$Equity\textbf{Debt/Equity Ratio} = \frac{\text{Total Debt}}{\text{Shareholders' Equity}}$

Where:

Total Debt includes: long-term borrowings + short-term borrowings
Equity includes: share capital + reserves & surplus

Interpretation

D/E Ratio Level	What It Indicates
High Ratio	Company relies more on debt → higher financial risk but potential higher returns
Low Ratio	Company is more equity-funded → lower risk but possibly slower growth