What does the debt-to-equity ratio measure?

The debt-to-equity ratio is a financial metric that specifically measures the proportion of a company's total liabilities to its total equity. This ratio provides valuable insight into the financial structure of a company and indicates how much debt is being used to finance the company's assets in relation to the equity provided by shareholders.

By calculating this ratio, investors and analysts can assess the level of financial leverage a company is utilizing and understand the risk associated with its capital structure. A higher debt-to-equity ratio may signal a higher risk, as it indicates that the company is relying more heavily on borrowed funds to finance its operations, potentially increasing the risk of default if it cannot meet its debt obligations. Conversely, a lower ratio may suggest that the company is more conservatively financed, relying more on equity than on debt.

Overall, the debt-to-equity ratio is essential for evaluating a company's financial health and its planned growth strategies while considering the associated risks linked to its funding methods.