Debt-to-Equity Ratio
Definition
How much of the business is funded by borrowing compared with the owners' money. Higher means more leverage and more risk.
Want a deeper explanation?
Formula
Debt-to-Equity = Total Liabilities ÷ Total EquityDebt can fuel inventory growth faster than profits alone, but it adds fixed payments that do not shrink in a slow season.
Lenders compare this ratio against your industry and your own trend. Watch for: owner draws pushing equity down while debt rises, which makes the ratio worse from both sides.
Example
$300,000 of liabilities and $200,000 of equity gives a debt-to-equity ratio of 1.5.