What is a safe D/E ratio?

Generally <1 is comfortable. Manufacturing: <1.5. FMCG: <0.5. Banking has naturally high D/E (deposits count as debt). Compare within same industry.

Is zero debt always better?

Not necessarily. Some debt is beneficial — it's cheaper than equity (due to tax shield) and can boost ROE through leverage. Very low D/E may mean underutilization of capital.

Debt-to-Equity Ratio Formula

Q: What is a safe D/E ratio?

Generally <1 is comfortable. Manufacturing: <1.5. FMCG: <0.5. Banking has naturally high D/E (deposits count as debt). Compare within same industry.

Q: Is zero debt always better?

Not necessarily. Some debt is beneficial — it's cheaper than equity (due to tax shield) and can boost ROE through leverage. Very low D/E may mean underutilization of capital.

The debt-to-equity ratio measures how much debt a company uses relative to its equity. It's a key indicator of financial risk and leverage.

Debt-to-Equity Ratio

D/E Ratio = Total Debt / Total Shareholders' Equity

Where:

Debt = Total borrowings (short-term + long-term)
Equity = Total shareholders' equity (share capital + reserves)

Step-by-Step:

1
Find total debt
Sum of all short-term and long-term borrowings from the balance sheet.
2
Find total equity
Shareholders' equity from the balance sheet.
3
Divide
D/E = Total Debt / Total Equity.

Worked Examples:

Company analysis

Total Debt: ₹50 CrEquity: ₹100 Cr

Result: D/E = 0.5

50/100 = 0.5. Moderate leverage — ₹0.50 of debt for every ₹1 of equity.