8. Debt-to-Equity Ratio

Indicates the proportion of a company’s funding that comes from debt compared to equity. Calculated by dividing total liabilities by shareholder equity, this ratio reveals financial leverage and risk. A higher ratio suggests greater reliance on debt.

Example: A company has $400,000 in total liabilities and $200,000 in shareholder equity. The debt-to-equity ratio would be $400,000 / $200,000 = 2.0, indicating the company uses twice as much debt as equity.