Debt to Equity Ratio Calculator
The debt-equity ratio shows how much a company depends on borrowed money (debt) compared to the money invested by its owners (equity).
– A D/E Ratio of 1 or less is considered healthy.
– 0.5 to 1: Good balance between debt and equity.
– Above 2: High debt risk — may affect creditworthiness.
What is Debt to Equity Ratio for Bank Loan?
The Debt to Equity Ratio compares a company’s total liabilities (or total debt) with its shareholders’ equity. It tells investors and lenders how much debt a business has taken relative to the owners’ investment. In simple terms:
It measures the proportion of debt financing versus equity financing.
Formula of Debt to Equity Ratio
Debt to Equity Ratio Formula
The formula to calculate Debt to Equity Ratio (D/E) is:
For example, if a company has ₹10,00,000 in total debt and ₹5,00,000 in shareholders’ equity:
D/E = 10,00,000 ÷ 5,00,000 = 2.0
Ideal Debt to Equity Ratio (Benchmark)
| Range | Interpretation |
|---|---|
| Below 1.0 | Excellent – Business is primarily funded by equity, indicating stability and lower risk. |
| 1.0 – 2.0 | Acceptable – Moderate leverage; manageable debt if cash flow remains strong. |
| Above 2.0 | Risky – Company is over-leveraged; higher risk during downturns or rising interest rates. |
International Standard:
A Debt to Equity Ratio of 1 or less is generally considered ideal for most industries.
Why is the D/E Ratio Important for Bank Loan?
- It helps measure financial stability and solvency.
- Investors use it to assess risk before investing.
- Banks check it before approving loans or credit lines.
- Management uses it to decide the optimal capital structure.
A company with a healthy D/E ratio can borrow money at lower interest rates and attract more investors due to lower perceived risk.
How to Use the Debt-Equity Calculator
- Enter Total Debt (₹) – Include all long-term and short-term borrowings.
- Enter Shareholders’ Equity (₹) – The owner’s capital, retained earnings, and reserves.
- Click Calculate to see your Debt to Equity Ratio.
- Check the result interpretation and benchmark instantly.
If the calculator shows:
- D/E = 0.8 → Very healthy balance between debt and equity.
- D/E = 1.5 → Acceptable but monitor debt levels.
- D/E = 3.0 → High leverage; may signal financial strain.
Tips to Improve Debt to Equity Ratio
- Reduce unnecessary borrowings and debt obligations.
- Retain more profits instead of distributing all as dividends.
- Issue new equity or bring in more investors.
- Convert short-term debt into long-term loans for better cash flow management.
Frequently Asked Questions about Debt to Equity Calculator for Bank Loan
Q1. What is a good Debt to Equity Ratio?
A ratio of 1.0 or below is considered ideal as per international standards. It shows that a company has a balanced approach between debt and owner’s capital.
Q2. Can a high Debt to Equity Ratio be bad?
Yes. A very high D/E ratio means a business is highly dependent on borrowed funds, which increases financial risk and can hurt profitability if interest costs rise.
Q3. Does industry type affect the ideal ratio?
Absolutely. Capital-intensive industries like manufacturing or telecom often have higher ratios than service or IT companies.
Q4. How often should businesses check their D/E Ratio?
Ideally, quarterly or annually when financial statements are prepared.