The debt-to-equity ratio is an easy calculation that reveals how much a business has been funded from loans and investments from shareholders.

Calculate your company’s debt-to-equity ratio as follows:

Debt-to-equity ratio = debt / shareholder’s equity

This ratio helps identify companies that are highly leveraged, meaning they have funded their business with substantially more debt than equity. Lenders typically favor businesses with debt-to-equity ratios of 2:1, however their decisions are also based on a borrower’s industry, revenue stability and profitability outlook.