The debt-to-equity ratio compares how much you owe to how much you own. It divides total Liabilities by shareholder equity—assets minus liabilities—to show the balance between borrowed funds and your own capital. For the concise definition, see Debt-to-Equity Ratio.
You can find these numbers on a company’s Sec Form 10-k Annual Report or on your personal balance sheet. For example, suppose you have $30,000 of liabilities and $70,000 of equity. Your debt-to-equity ratio is 0.43 (30,000 ÷ 70,000), meaning you owe 43 cents for every dollar you own. A business with $200,000 in liabilities and $100,000 in equity has a ratio of 2, signaling twice as much debt as equity—a step toward Insolvency.
Many investors aim for a ratio around 30% or less so debt enhances returns without overwhelming the balance sheet. Paying down liabilities or growing Assets Overview For Beginners lowers the ratio and helps maintain Solvency.
An easy way to remember: keep debt small relative to equity.