Debt to Equity Ratio Calculator
Calculate the three leverage measures lenders test: debt-to-equity, debt ratio and interest coverage. These determine whether you get the loan and what you pay for it.
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Book Your Free 30-Min Call →The Three Measures
Debt to Equity = Total Debt ÷ Total EquityDebt Ratio = Total Debt ÷ Total AssetsInterest Coverage = EBIT ÷ Interest Expense
Debt-to-equity compares what you owe to what the owners have put in and left in. Debt ratio expresses the same idea against total assets. Interest coverage does something different and arguably more important: it asks whether current trading actually generates enough profit to service the debt you already carry.
Interest Coverage Is the One That Bites First
A business can carry a high debt-to-equity ratio comfortably if earnings are strong and predictable, and a modest one can be dangerous if earnings are thin and volatile. Coverage captures that difference where the balance sheet ratios cannot.
Below 1.5x, operating profit barely covers the interest bill and there is nothing left for principal repayment or a bad quarter. Between 1.5x and 3x is workable but watched. Above 3x, most lenders stop worrying about it. Loan covenants very often specify a minimum coverage ratio, and breaching it can trigger default even when every payment has been made on time.
What Counts as Debt
Include interest-bearing obligations: bank loans, lines of credit drawn, equipment finance, and the capitalised portion of leases. Trade payables are generally excluded from debt-to-equity because they are operating rather than financing, though some lenders use a total-liabilities definition instead. Ask which one a lender is applying before you compare your ratio to their covenant — the two can differ substantially.
Leverage Is a Tool, Not a Failing
Debt is cheaper than equity, and the interest is generally deductible while dividends are not. A business earning a 20% return on assets and borrowing at 9% creates value with every dollar it borrows. The risk is not leverage itself but leverage paired with volatile earnings — fixed obligations against variable income is the combination that puts businesses under.
Check the cost side of your capital structure with our WACC calculator, and test whether cash flow covers the obligations using our cash flow forecast.
Frequently Asked Questions
What is a good debt-to-equity ratio?
Below 1.0 reads as conservative and between 1.0 and 2.0 as normal for most established businesses. Above 2.0 limits further borrowing. Capital-intensive sectors such as property and utilities sustainably run much higher.
Should I include accounts payable as debt?
Usually not for debt-to-equity, since trade payables are operating rather than financing obligations. Some lenders use total liabilities instead, so confirm the definition behind any covenant you are measured against.
What if my equity is negative?
The ratio becomes meaningless and the negative equity itself is the finding — accumulated losses or distributions have exceeded capital contributed. Lenders treat it as a serious concern requiring explanation.
How do operating leases affect this?
Under current standards most leases appear on the balance sheet as a right-of-use asset and a corresponding liability, which raises reported leverage compared with older treatment. Make sure any historical comparison is on a consistent basis.