Definition
The debt-to-equity ratio is a financial measure that shows how much debt a company has compared to its own funds (equity). It helps investors understand how a company is financing its operations through borrowing or its own capital.
Example
When a company has Rs 2 lakh in debt and Rs 1 lakh in equity, the debt-to-equity ratio is 2:1. This means the company is using more borrowed money than its own funds.
Caution
A high debt-to-equity ratio may indicate higher risk, as the company has more debt to repay. However, a very low ratio may also mean the company is not using growth opportunities effectively. Investors should analyze it along with other factors.