How to use the debt-to-equity calculator
Take the figures from the company’s latest balance sheet, in millions of dollars:
- Lease liabilities. Choose whether to count them as debt. Since 2019, US companies report operating leases on the balance sheet, and many analysts treat them as debt because the payments are just as fixed.
- Short-term and long-term debt. Include the current portion of long-term debt in short-term debt. Do not include accounts payable or accrued expenses.
- Cash and short-term investments, for net debt.
- Shareholders’ equity and total assets. Equity can be negative; the calculator explains what that means.
- Total liabilities, optional. Leave it blank and the calculator uses total assets minus equity.
The formulas
Net debt to equity = (Total debt − Cash) ÷ Equity
Equity multiplier = Total assets ÷ Equity
Debt ratio = Total debt ÷ Total assets
Debt to capital = Total debt ÷ (Total debt + Equity)Total debt = short-term debt + long-term debt, plus lease liabilities if you include them. All figures are book values from the balance sheet.
The ratios describe the same balance sheet from different angles. Debt-to-equity compares lenders’ money with owners’ money; the debt ratio shows the share of assets funded by borrowing; the equity multiplier, also called the financial leverage ratio, shows how far the asset base is stretched over equity.
A worked example
Company A has $400M of short-term debt, $2,600M of long-term debt and $500M of lease liabilities: total debt of $3.50B. Shareholders’ equity is $5,000M and total assets are $11,000M.
Debt-to-equity is 0.70. Netting off $800M of cash, net debt is $2.70B and net debt to equity is 0.54. Debt funds 31.8% of the assets, and the equity multiplier is 2.20×.
Leaving leases out, debt-to-equity would be 0.60. Counting all liabilities, it would be 1.20.
Why the same company shows different ratios
Data providers do not agree on what counts as debt. Some include leases, some do not; some use long-term debt only; some divide total liabilities by equity. The table under the calculator puts Company A’s versions side by side, from 0.70 to 1.20.
Book equity adds its own distortions. A buyback pays out cash and shrinks equity without changing the business. If Company A borrowed $1,000M and used it to buy back shares, debt-to-equity would jump from 0.70 to 1.13. Companies that have bought back stock for years can end up with very small or negative equity, which makes the ratio look extreme or meaningless. In those cases debt against earnings or cash flow tells you more, and the interest coverage calculator shows whether profits carry the interest bill.
Reading the ratio by industry
What counts as high depends on the business model:
- Utilities, pipelines and telecoms often carry more debt than equity. Their revenue is steady and partly regulated, so lenders accept higher leverage.
- Real estate companies and REITs borrow against property, so their ratios are usually high; loan-to-value is often the more natural measure.
- Banks and insurers are not judged this way at all. Deposits and policy reserves are liabilities, so their balance sheets look extremely leveraged by design, and regulators use capital ratios instead.
- Software and other asset-light businesses often borrow little and may hold net cash, which shows up as a negative net debt to equity.
- Cyclical industries such as autos, airlines and materials face sharp swings in earnings, so a level of debt that looks fine at the peak can be a problem in a downturn.
Leverage and return on equity
Debt amplifies the return on equity in both directions. The equity multiplier is one of the three terms in the DuPont formula, ROE = profit margin × asset turnover × equity multiplier. A higher multiplier lifts ROE when the business earns more on its assets than the debt costs, and deepens losses when it does not.
What this calculator does not include
The ratios use book values. Market-value leverage, debt against market capitalization, is what enters the WACC. The calculator does not count pension deficits, preferred stock or other debt-like items unless you add them to debt yourself, and it uses a single balance sheet date: debt can be reduced just before year-end and rise again afterwards. Leverage ratios say nothing about when debt matures or what it costs, so read them alongside interest coverage and the maturity schedule in the annual report.