Debt-Equity Ratio

Definition: This is the ratio of the company's liabilities to its equity (total value of all the stock).

TeenAnalyst Advice: The debt-equity ratio is an important number to consider. A company with a high debt-equity ratio is one that has a considerable amount of debt.

Debt in itself isn't bad.  However, debt requires that the company make timely interest payments.  That means it's important that companies with high debt-equity's have positive earnings and strong cash flows.  Otherwise, it means they might default on paying their debt.

Jonny Boy said:

Jodi - once again I have something a little different - is it in line with your definition? - A method used for measuring solvency and researching the capital structure of a corporation is debt to equity. This indicates the corporation's leverage by comparing what is owing to what is currently in possession. It measures the ability of a corporation's power to borrow funds and to repair those funds. Shareholders closely monitor the debt to equity ratio and bank creditors because it expresses the intent a corporation management team is willing to fund its operation with debt. Excessively high ration will put loans at risk of payment default. This is a method utilized over a period of several years.