What does the debt-to-equity ratio measure?

The debt-to-equity ratio measures financial leverage, which is an important indicator of a company's capital structure and its reliance on debt financing relative to equity financing. This ratio provides insight into how much debt a company is using to finance its operations compared to the owner's equity.

A higher ratio indicates that a company is primarily financed by debt, which can suggest greater financial risk, as it may have higher liabilities to repay. Conversely, a lower ratio suggests that a company is relying more on equity financing, which might indicate more stability but less leverage to grow.

Understanding the debt-to-equity ratio is crucial for investors and analysts to evaluate the financial health of a company and to assess the level of risk associated with its capital structure. It reflects the balance between equity and debt financing, allowing stakeholders to gauge how well a company can meet its long-term obligations and potentially fund growth opportunities.