Debt-to-equity ratio: formula, versions and when it misleads

The debt-to-equity ratio (D/E) compares what a company has borrowed with what its shareholders have put in and left in the business. A D/E of 0.5 means the company carries 50 cents of debt for every dollar of shareholders' equity; a D/E of 2 means two dollars. It is the most quoted single measure of financial leverage, and lenders, rating agencies and investors all use some version of it.

Leverage cuts both ways. Borrowed money can fund growth more cheaply than issuing shares, and interest is tax-deductible, so moderate debt can raise returns to owners. But debt carries fixed obligations: interest must be paid and principal repaid or refinanced on schedule, whatever happens to sales. The more debt relative to equity, the less room a company has before a bad year becomes a crisis.

D/E also misleads more often than most ratios, because both halves can be defined in several ways and because book equity can be tiny for reasons unrelated to risk. Apple Inc. shows all of it: a D/E of 1.34 that looks moderately leveraged, a total-liabilities version of 3.87 that looks heavy, and a balance sheet that actually holds $33.8 billion more cash than debt.

The formula and its versions

"Debt" here means interest-bearing borrowing: bank loans, bonds and notes, commercial paper, and often lease liabilities. Many analysts include operating lease liabilities because they are fixed, debt-like payments; others don't. Book shareholders' equity comes from the Balance sheet: assets, liabilities and equity explained with Apple.

A broader version divides total liabilities by equity. It counts every obligation, including supplier payables, accrued expenses, deferred revenue and tax liabilities. That is the version shown in the SEC's Beginners' Guide to Financial Statements. It answers a different question: how much of the balance sheet is funded by anyone other than owners.

The ratio fell from 1.87 to 1.34 in one year. Debt fell by 7,972 as Apple repaid more notes than it issued, and equity rose by 16,783 because net income outran buybacks and dividends. Both moves lowered D/E.

Two close relatives express the same information differently:

• Debt-to-capital = debt ÷ (debt + equity) = 98,657 ÷ 172,390 = 57.2%.
• Debt-to-assets = debt ÷ total assets = 98,657 ÷ 359,241 = 27.5%.

Why D/E misleads for Apple

Buybacks shrink the denominator

Shareholders' equity falls by every dollar spent on repurchases and dividends. Apple spent $90.7 billion on buybacks in fiscal 2025 and $94.9 billion the year before, which keeps its equity small relative to its size. The company could hold the same debt and the same cash, earn the same profit, and show a much higher D/E simply by buying back more stock. In that case the ratio rises while the ability to pay doesn't change. The Return on equity (ROE): formula, DuPont analysis and pitfalls page shows the same distortion pushing ROE above 150%.

D/E ignores cash

A company with $100 of debt and $150 of cash is in a very different position from one with $100 of debt and no cash, yet both show the same D/E. Net debt fixes that.

Net debt is also the bridge from market value of equity to Enterprise value (EV): formula, what counts as debt and cash.

Book equity versus market value

Book equity reflects accounting history, not what the business is worth. At the September 26, 2025 close of $255.46, Apple's market capitalization was about $3.77 trillion, so debt was about 2.6% of the market value of its equity. Lenders care about cash flow and asset coverage, and on those terms Apple's debt is small.

Debt/EBITDA: leverage against earning power

Credit analysts often prefer to compare debt with how much cash the business generates, using EBITDA (operating income plus depreciation and amortization) as a rough proxy.

As loose rules of thumb, gross debt/EBITDA under about 2× is generally seen as conservative for a large non-financial company, and readings above about 4× to 5× are typical of highly leveraged borrowers. Apple's 0.68× is low. The Interest coverage ratio: can earnings pay the interest bill? asks the companion question of whether earnings cover the interest bill.

Looking past the ratio: Apple's notes

Ratios compress a debt schedule into one number. The notes to the financial statements show what the debt actually is. Apple's fiscal 2025 10-K reports:

• $91.3 billion of fixed-rate notes outstanding (principal), with $12.4 billion payable within 12 months, plus $8.0 billion of commercial paper, also due within 12 months.
• Effective interest rates ranging from 0.03% to 5.75%, with $4.5 billion of new notes issued in fiscal 2025 at 4.000%–4.750% coupons.
• $37.0 billion of future interest payments on the notes, $2.6 billion of it within 12 months.
• A fair value of the notes of $80.4 billion, below principal, largely because many were issued when interest rates were lower.

The principal falls due in a ladder rather than all at once:

About 35% of the principal matures within three years and 54% after five. A staggered ladder like this means no single year's refinancing is large relative to Apple's $111.5 billion of operating cash flow. For a weaker company, a large maturity in a year when credit markets are closed is exactly where a high D/E becomes dangerous.

How to read D/E

• Compare within an industry. Utilities, telecoms and real estate companies carry high D/E by design because their cash flows are steady and their assets are long-lived. Software companies often carry little debt. Banks are measured with regulatory capital ratios instead.
• Watch the trend. A D/E that climbs year after year while earnings stall is a warning; one that climbs because of buybacks funded from surplus cash is a different story.
• Always pair it with net debt and coverage. D/E says how much is owed relative to book equity, not whether the company can pay.
• Mind negative equity. If equity is negative, D/E is negative and meaningless. Use debt to EBITDA or debt to assets.

Pitfalls

• Inconsistent definitions across sources: debt only, debt plus leases, or all liabilities.
• Off-balance-sheet obligations. Purchase commitments, guarantees and pension deficits can be debt-like without appearing as debt. Apple, for example, reports $16.8 billion of fixed lease payment obligations.
• Year-end window dressing. A company can pay down a revolver just before year-end and borrow again after. Quarterly balance sheets help.
• Intangible-heavy equity. Large goodwill from acquisitions inflates equity and makes D/E look lower than tangible backing supports.

Comparison: leverage measures

How Finabase does it

The Valuation tab has a Financial Health group with Debt / Equity and Net Debt / EBITDA as ten-year annual charts from FMP, beside current ratio, quick ratio and interest coverage. Its "Financial health" card adds an Altman Z-Score gauge, a Piotroski F-Score and an FMP rating whose sub-scores include D/E. FMP's definition of debt may include items such as leases, so its D/E can differ from the 1.34 above.

The Financials tab shows current, non-current and total debt, cash and investments, total liabilities and equity, annual or quarterly; click a row to chart its history. The summary page's Key statistics include Total cash and Total debt from the data provider. Finabase's screener doesn't filter on D/E.

Frequently asked questions

What is a good debt-to-equity ratio?

It depends on the industry. Below about 1 is often seen as conservative for an industrial or technology company, while utilities routinely run higher. Check net debt and interest coverage before drawing conclusions.

Is a high debt-to-equity ratio bad?

Not always. A high ratio can come from buybacks shrinking equity, as at Apple, rather than from heavy borrowing. It becomes a problem when earnings and cash flow can't comfortably cover interest and maturities.

Does debt-to-equity include all liabilities?

It depends on the source. The usual analyst version counts interest-bearing debt only, while the SEC's beginners' guide divides total liabilities by equity. For Apple they give 1.34 and 3.87.

What is net debt?

Net debt is total debt minus cash and marketable securities. A negative figure, like Apple's −$33.8 billion, means the company holds more cash than it owes.

Summary

The debt-to-equity ratio divides debt by shareholders' equity and is the standard first look at leverage. Apple's 1.34 at the end of fiscal 2025, down from 1.87, shows why it can't be read alone: buybacks keep Apple's equity small, and the ratio ignores $132.4 billion of cash and securities that leave the company with net cash. Pair D/E with net debt, debt/EBITDA, interest coverage and the maturity schedule in the notes, and compare it only with companies in the same industry using the same definition.