What is debt-equity ratio?

Debt-equity ratio is a measure of leverage, indicating proportion of company's total capital contributed by secured and unsecured debt. A high debt-equity ratio, generally 2:1 and above, is not considered favourable for companies. Also, this ratio varies from industry to industry.

Debt-equity ratio = Secured + Unsecured debt

Shareholders Funds

E.g.: As on 31st March 2010, company had secured loan of Rs. 70 crore, unsecured loan of Rs. 30 crore, shareholders funds (equity and reserves) of Rs. 200 crore.

Debt-equity ratio = 70 + 30


Debt-equity ratio = 0.5:1