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A financial leverage ratio that compares a company's total debt to its shareholders' equity.
Calculated by dividing total liabilities by shareholders' equity, this ratio indicates how much debt a company uses to finance its operations relative to equity. A D/E ratio of 1.0 means equal parts debt and equity. Higher ratios indicate more leverage, which amplifies both gains and losses. Industries have different norms: utilities and real estate companies often carry D/E ratios above 2.0, while technology companies may operate with ratios below 0.5. Excessive debt increases bankruptcy risk, especially during economic downturns when revenues decline but debt payments remain fixed.