D/E Ratio

Debt-to-Equity (D/E) ratio compares total borrowings to shareholder equity. It measures financial leverage — how much of the business is funded by lenders versus owners.

Formula: D/E = Total Debt / Shareholders Equity. Total Debt usually includes short-term and long-term borrowings; some analysts net off cash.

Example: Hindustan Unilever with debt of Rs 100 cr on equity of Rs 8,000 cr has D/E = 0.01x (effectively debt-free). A capital-heavy infra company may carry D/E of 2.0x or higher.

When to use: Solvency screening. Indian large-cap manufacturers typically operate below 0.5x; FMCG and IT services hover near zero; utilities and real-estate are structurally higher.

When NOT to use: Banks and NBFCs — debt IS their raw material, so use leverage ratios (CET1, Tier 1) instead. Also unreliable when off-balance-sheet liabilities (leases, guarantees) are material.

Caveat: Past performance is not indicative of future returns. A safe-looking D/E can spike if a major capex is debt-funded.

Related terms: ROE, ROCE, Credit Rating.