The debt-to-equity ratio (D/E) is a financial ratio that measures the relationship between a company's total debt and its shareholders' equity. It reveals how much a company relies on borrowing versus its own funds.
The formula is: D/E Ratio = Total Debt / Total Shareholders' Equity
A high D/E ratio indicates the company is heavily reliant on debt to fund operations, signaling higher financial risk. A low D/E ratio means the company uses more of its own equity, indicating lower financial risk.
What's considered a 'good' or 'bad' D/E ratio varies by industry. Capital-intensive industries like utilities and telecom typically have higher ratios due to large infrastructure investments.
In Bangladesh, the D/E ratio is an important tool for understanding a company's capital structure when it raises funds through debt or equity.