Debt-to-Equity Ratio (Investments & Retirement) - Definition, Examples, Advice | Bolder Money

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Definition

A measure of how much debt a company has compared to its shareholders’ equity. It’s used to evaluate financial stability and risk.

What to consider

It shows how much debt a company uses compared to its own funds.
A higher ratio might indicate more risk.
Use it as one measure when evaluating a potential investment.

Real world scenarios

A venture capitalist reviews a startup’s debt-to-equity ratio before investing, preferring companies with more equity than debt.
Jeremy tracks his small firm’s ratio quarterly, staying alert to any sign of excessive borrowing that could threaten stability.
Too high a ratio indicates potentially risky finances, prompting lenders to charge higher interest or impose strict loan terms.

Related terms

Investments & Retirement

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