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D/E
(Debt-to-Equity Ratio)
D/E (Debt-to-Equity Ratio) quantifies financial leverage: Total Liabilities / Shareholders' Equity. A 2.0 D/E means $2 of debt per $1 of equity.
Capital-intensive industries (telecoms) tolerate higher D/E than tech firms. Excessive D/E risks insolvency if EBITDA declines, while too-low D/E may signal underutilized growth potential. Creditors use D/E with FICO scores to set loan terms. The FRB tracks aggregate corporate D/E for systemic risk (U.S. non-financial D/E hit 0.91 in 2023). Unlike LTV (asset-specific), D/E reflects whole-balance-sheet risk. Optimal D/E balances tax benefits with bankruptcy costs (see WACC).
Capital-intensive industries (telecoms) tolerate higher D/E than tech firms. Excessive D/E risks insolvency if EBITDA declines, while too-low D/E may signal underutilized growth potential. Creditors use D/E with FICO scores to set loan terms. The FRB tracks aggregate corporate D/E for systemic risk (U.S. non-financial D/E hit 0.91 in 2023). Unlike LTV (asset-specific), D/E reflects whole-balance-sheet risk. Optimal D/E balances tax benefits with bankruptcy costs (see WACC).