The D/E ratio is calculated by dividing total liabilities by shareholders equity.

There is no single “right” value for a D/E ratio for a company. The two primary drivers of what will be the right value for you are: (a) the standards for your industry, and (b) your comfort level with debt.

• A value of 1.0 means that you are getting half from loans and half from investors.
• A value greater than 1.0 means that more of your money is from loans and less is from investors. The disadvantages of this are that you must continually make payments on loans (this drains cash and decreases profits), and loans can be extremely difficult for most businesses to secure without collateral. The advantage however is that you will be able to maintain more ownership of the company for yourself.
• A value less than 1.0 means that more of your money is from investors and less is from loans.

Related Questions:

How can I see my balance sheet?

Will I be able to get a loan?