Debt-to-Equity Ratio

What it is\nTotal debt divided by total equity. A D/E of 0.5 means 50 cents of debt for every dollar of equity. A D/E of 2 means twice as much debt as equity.\n\n## How Buffett thinks about it\nBuffett dislikes leverage: "It's insane to risk what you have and need for what you don't have and don't need."\n\nThe reason: leverage works perfectly until it doesn't. The 2008 financial crisis wiped out hundreds of "high-quality" leveraged businesses overnight when credit markets froze.\n\n## What "good" looks like\n- D/E < 0.3: conservative, fortress balance sheet (Apple, Microsoft, Berkshire)\n- 0.3–1.0: moderate, normal for most quality businesses\n- 1.0–2.0: leveraged — usually capital-intensive (utilities, REITs)\n- > 2.0: high leverage. Acceptable only if cash flow is contractually predictable (utilities, regulated infrastructure)\n\n## Better metrics for fundamentals\nD/E uses book equity, which can be distorted by buybacks (which lower book equity) and goodwill (which inflates it). For real-world stress-testing, prefer:\n- Net Debt / EBITDA (target < 3×)\n- Interest Coverage (target > 5×)\n- Current Ratio (target > 1.5)\n\nThose three together tell you whether the company can survive a bad year.