What is the debt-to-equity ratio?
Total debt divided by shareholders' equity. The standard balance-sheet-leverage signal. Sustainable ranges vary sharply by industry: software companies run 0-0.3, manufacturing 0.3-1.0, real estate 1-3, banks 5+.
D/E equals total liabilities (or total debt) divided by shareholders' equity. A ratio of 0.5 means $0.50 of debt for every $1.00 of equity. A ratio of 2.0 means twice as much debt as equity. The signal is industry-relative: software businesses typically run very low D/E (capital-light), manufacturing moderate, banks structurally high (the business model requires leverage). Above-industry-median D/E increases risk in any recession; a company with a 1.5x D/E in a sector with a 0.5x median is materially more vulnerable to a downturn.
How invest-like uses it
D/E appears inside the Buffett-Fit financial-health pillar and the Graham defensive-investor framework. Graham's original criteria included a hard cap on debt: long-term debt below working capital. The modern equivalent in invest-like is net-debt/EBITDA below 2.0x and D/E below the sector median.
The 2026 methodology update tightened the financial- health pillar threshold: stocks now need net-debt/EBITDA below 2.0x to fully pass the pillar (formerly 2.5x). The change reflects the higher rate environment where interest expense weighs more on levered balance sheets.
Frequently asked questions
What is debt-to-equity?
Total debt divided by shareholders' equity. Measures balance-sheet leverage.
What's a safe D/E?
Industry-dependent. Software 0-0.3, manufacturing 0.3-1.0, real estate 1-3, banks 5+. Above-industry-median is the actionable signal.
Why does invest-like use net-debt/EBITDA instead?
Net-debt/EBITDA (debt minus cash, divided by operating earnings) is more informative because it accounts for cash on the balance sheet. A company with $10B debt and $40B cash has -$30B net debt, which D/E doesn't capture.
E-mail hebdo gratuit
Les actions les plus solides de la semaine, chaque lundi.
Chaque lundi : les actions sur lesquelles la plupart des sept investisseurs sont nouvellement d'accord. Un e-mail, désinscription à tout moment.
De la recherche, pas un conseil en investissement.
Educational only. invest-like is not a registered investment adviser; nothing on this page constitutes personalised investment advice.