Debt Equity Ratio
Debt Equity Ratio compares a company's total debt to its shareholders' equity to show how much of the business is funded by borrowing versus owners' money.
Debt Equity Ratio is calculated as Total Debt divided by Total Shareholders' Equity. It is a key leverage ratio used to judge financial risk before investing in an IPO.
Key points:
A higher ratio means the company relies more on borrowed money
A lower ratio suggests the company is funded mainly by equity, which is generally safer
Different industries have different acceptable ranges (capital-intensive sectors usually run higher)
Example:
If a company has total debt of ₹40 crore and equity of ₹80 crore, its debt equity ratio is 0.5, meaning it has ₹0.50 of debt for every ₹1 of equity.