Technical definition
A leverage ratio comparing interest-bearing debt or total liabilities with equity, depending on the stated definition.
How it works
The numerator must be defined explicitly because analysts use both debt-only and total-liability versions. The ratio indicates how strongly creditors versus owners finance the entity and should be read with maturity, interest and cash-flow capacity.
Everyday example
Debt of $60,000 and equity of $40,000 produce a debt-to-equity ratio of 1.5.
Common pitfall
Ratios with different numerator definitions are not comparable, and a low ratio is not always optimal for every business model.