How to use the debt-to-equity ratio calculator
- Choose whether you know liabilities and equity or assets and liabilities.
- Enter total liabilities: everything the business owes, including loans, payables, accrued bills and deferred revenue.
- Enter owner equity, or total assets if you picked that route. The tool finds equity as assets minus liabilities.
- Read the ratio and the related measures: the debt ratio, the equity multiplier and the share of financing that comes from liabilities.
Formula
Debt-to-equity = total liabilities / owner equity
Equity = total assets - total liabilities
Debt ratio = liabilities / assets
Equity multiplier = assets / equity
Assets always equal liabilities plus equity, so any two of the three numbers give the third. The ratio is shown to two decimals and is not defined when equity is zero or negative.
$150,000 of liabilities and $100,000 of equity
Assets are 150,000 + 100,000 = $250,000. The debt-to-equity ratio is 150,000 / 100,000 = 1.50, meaning $1.50 of liabilities for every $1 of equity. The debt ratio is 150,000 / 250,000 = 60%, and the equity multiplier is 250,000 / 100,000 = 2.50.
Start from assets instead: if assets are $250,000 and liabilities are $150,000, equity is $100,000 and every figure above comes out the same. If liabilities were $300,000 against the same $250,000 of assets, equity would be negative and the ratio would not be defined.
Reading the ratio
A ratio of 1.00 means liabilities equal equity. A higher ratio means the business relies more on borrowed money or other obligations, which raises fixed payments but can also increase returns to owners when things go well. A lower ratio means more of the business is funded by the owners. There is no single good number, because capital-heavy industries often carry far more debt than service businesses.
Definitions differ
Some lenders count only interest-bearing debt in the top of the ratio, and some use total liabilities as this page does. Others use market value of equity for a listed company. Ask which definition applies before comparing your number with a loan covenant or with another company.
For other balance sheet and cost checks see the Operating Expense Ratio Calculator and the Working Capital Calculator. For personal borrowing against income, use the Debt-to-Income Ratio Calculator.
Assumptions and limits
- Liabilities and equity are taken from the same balance sheet date.
- Equity must be above zero for the ratio to exist.
- Book values are used as entered. No adjustment is made for market value.
- Nothing is uploaded. Calculations run in your browser.
Frequently asked questions
What is a good debt-to-equity ratio?
There is no universal answer. It depends on the industry, the stability of cash flow and the lender. Compare your ratio with similar businesses and with the terms of any loan you hold, rather than with a single target.
Can the ratio be negative?
Only if equity is negative, which happens when liabilities exceed assets. This tool does not show a ratio in that case, because dividing by a negative number hides the real situation. It tells you equity is zero or below.
Should I include accounts payable in liabilities?
On this page, yes. Total liabilities include payables, accrued expenses, loans and other obligations. If your lender counts only interest-bearing debt, enter that figure instead and note the change.
How is this different from the debt ratio?
The debt ratio divides liabilities by assets and always falls between 0% and 100% when equity is positive. Debt-to-equity divides by equity, so it grows without limit as equity shrinks. Both are shown so you can use whichever your lender names.