Debt-to-Equity Ratio and Credit Ratings

Debt-to-equity is the most commonly cited headline leverage ratio, expressing total borrowings as a multiple of shareholder funds.

How It Is Calculated

Debt-to-equity is generally calculated as total debt (sometimes limited to long-term or total interest-bearing debt, depending on the agency's convention) divided by total shareholder equity or net worth.

Reading the Ratio in Context

A lower ratio generally signals lower financial risk, but the comfortable range differs sharply by sector — capital-intensive industries with stable, contracted cash flows can typically sustain higher leverage than businesses with more volatile or seasonal earnings. Agencies also examine the trend: rising leverage funding productive core-business capacity is generally read differently from rising leverage funding working capital stress or unrelated diversification.

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Disclaimer: This article is intended for general informational and educational purposes only and does not constitute financial, credit, investment, or legal advice. Credit ratings are assigned solely by SEBI-registered Credit Rating Agencies (such as CRISIL, ICRA, CARE Ratings, India Ratings, Brickwork, Acuite, and Infomerics) based on their own methodologies, policies, and the information available to them at the time of assessment. FinMen Advisors provides preparatory and advisory support to companies undergoing a rating exercise and does not issue, influence, or guarantee any rating outcome. Readers should exercise independent judgement and consult qualified professionals before making business or financial decisions.