Glossary

The debt-to-equity ratio (D/E ratio) is a financial metric used to assess a company's financial leverage.

It compares the total debt of a company to its shareholders' equity, illustrating the extent to which the company relies on borrowed money to finance its operations. A higher D/E ratio indicates that a company has a larger proportion of debt in its capital structure, which could imply greater financial risk. 💰

For example, if a company has $1 million in total debt and $2 million in shareholders' equity, the D/E ratio would be 0.5 ($1 million ÷ $2 million).

Fun fact: There is no universal "ideal" D/E ratio, as it varies across industries and business models. Generally, a lower D/E ratio is considered more desirable, as it indicates a healthier balance between debt and equity. However, some industries tend to have higher ratios due to the nature of their operations, such as utilities and real estate companies. 🏘️