Debt Ratio simply explained

Jun 13, 2022 | Knowledge Debt Ratio simply explained

The gearing ratio indicates how heavily indebted a company is. There are companies with low levels of debt that have a high level of cash and can easily repay their debts....

Oscar Leistikow


Table of contents

  1. What is the debt ratio?
  2. How is the debt ratio calculated?
  3. What does the debt ratio mean?

What is the debt ratio?

The debt ratio indicates how highly indebted a company is. There are companies with low levels of debt that have a high level of cash and can easily pay off their debts. In contrast, there are also companies that can barely manage their high debts.

How is the debt ratio calculated?

In stocks.guide, debt is calculated as follows according to the High Growth Investing strategy:

Debt-equity ratio = debt / equity

The sum of current and non-current liabilities is set in relation to equity. The most recent quarterly figures are used for the calculation.

What does the debt ratio mean?

A debt ratio of less than 1 indicates a low level of debt. A debt ratio greater than 2 indicates possible risks from debt. Companies with a low debt ratio tend to be less risky. However, the debt ratio can be subject to high fluctuations.
Oscar Leistikow

Written By: Oscar Leistikow

Oscar Leistikow holds a Master's degree in Controlling and is at home in the world of numbers thanks to his many years of professional experience in the finance department of a DAX-listed company. He is fascinated by the capital markets and is an enthusiastic private investor himself. His aim is to pass on his knowledge of shares and the stock market and to develop StocksGuide into a leading tool for private investors.