Dividend.Direct
Metrics & Definitions

Debt-to-Equity Ratio: Measuring Leverage

2 min read
debt to equity

Learn what debt-to-equity ratio means, why it matters for dividend safety, and what levels are concerning.

Debt-to-Equity Ratio

The debt-to-equity ratio measures how much debt a company uses to finance its operations relative to shareholder equity.

The Formula

Debt/Equity = Total Debt ÷ Total Shareholder Equity

Interpretation

  • <0.5: Conservative - low leverage
  • 0.5-1.5: Moderate - typical for most industries
  • >2.0: High leverage - increased risk

Impact on Dividends

High debt means more interest payments, leaving less cash for dividends. During downturns, highly leveraged companies may cut dividends to service debt.

How Dividend.Direct Uses It

Debt/equity above 2.0 triggers our "High Leverage" warning flag and reduces the stock's Quality Score.

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