Debt-to-equity ratio
Borrowings compared with shareholders' funds, the basic leverage measure.
Fundamental ratios
Live NSE examples below
What is Debt-to-equity ratio?
The debt-to-equity ratio compares what a company owes lenders with what belongs to its shareholders. Debt is not bad in itself, because it can fund growth more cheaply than issuing shares, but it adds fixed interest costs that do not shrink when profits do. That is why heavily indebted companies are the first casualties of downturns and rate hikes.
Formula
Debt/Equity = total borrowings ÷ net worth
Interest coverage = EBIT ÷ interest expense
How to read it
- Below 0.5 is conservative for most non-financial companies; above 1-1.5 deserves scrutiny.
- Pair it with interest coverage. D/E of 1 with coverage of 10× is safer than D/E of 0.5 with coverage of 1.5×.
- Capital-intensive sectors (power, infrastructure, telecom) structurally carry more debt.
Common mistakes
- Applying D/E to banks and NBFCs, where borrowing is the business model. Use capital adequacy and NPAs instead.
Live: NSE stocks matching this today
Debt-free companies 48
| Stock | ROE | ROCE | OPM |
|---|---|---|---|
| BDLBharat Dynamics Limited | 5.0% | 14.0% | 4.6% |
| FORCEMOTFORCE MOTORS LTD | 29.9% | 36.0% | 16.1% |
| GILLETTEGillette India Limited | 70.6% | 91.0% | 30.3% |
| NBCCNBCC (India) Limited | 25.4% | 31.0% | 5.1% |
| LMWLMW Limited | 6.1% | 7.0% | 6.5% |
| VINATIORGAVinati Organics Limited | 14.2% | 20.0% | 27.9% |
| 500123Elantas Beck India Ltd | 14.4% | 21.0% | 20.3% |
| SHARDACROPSharda Cropchem Limited | 20.0% | 30.0% | 19.5% |
Low-debt companies with ROE ≥ 12% 320
| Stock | Debt/Equity | Debt | Interest Cover |
|---|---|---|---|
| PGHHProcter & Gamble Hygiene and Health Care Limited | 0.00 | ₹1 Cr | 112.52 |
| COLPALColgate Palmolive (India) Limited | 0.03 | ₹47 Cr | 431.00 |
| 500414Timex Group India Ltd | 0.05 | ₹6 Cr | 27.75 |
| NESTLEINDNestle India Limited | 0.09 | ₹444 Cr | 29.06 |
| PGHLProcter & Gamble Health Limited | 0.02 | ₹9 Cr | — |
| PAGEINDPage Industries Limited | 0.18 | ₹277 Cr | 20.53 |
| CASTROLINDCastrol India Limited | 0.03 | ₹63 Cr | 140.67 |
| WEBELSOLARWebsol Energy System Limited | 0.21 | ₹131 Cr | 21.00 |
Use it on Flash Finance
Related concepts
ROE (return on equity)Annual profit as a percentage of the shareholders' money in the business.ROCE (return on capital employed)Operating profit as a percentage of all the capital a business uses, debt included.P/B ratio (price-to-book)Market value compared with the accounting value of shareholders' equity.
