Debt-to-Equity Ratio: Formula, What Counts as Good, and 2025 Medians by Industry

Michael Whitman · Trading since 2017, full-time since 2020 · YouTube creator, 137K subscribers · Published 2026-09-14 · Updated 2026-11-02 · Reviewed 2026-11-01

The debt-to-equity ratio divides what a company owes by its shareholders’ equity, showing how many dollars of borrowing or other obligations sit on the balance sheet for every dollar the owners have in it. A ratio of 2.0 means $2 owed per $1 of equity; whether that is a lot depends on the industry and on which of two common formulas was used.

How it works

The formula is one division, with a choice in the numerator.

Debt-to-equity = what the company owes / total shareholders’ equity

The denominator is shareholders’ equity: total assets minus total liabilities, as the balance sheet records them. It is a book figure, built from what was paid for assets, less depreciation and write-downs, plus profits kept over the years. It is not the company’s market value.

The numerator is where analysts part ways. The version most glossaries print uses total liabilities, which includes supplier bills, deferred revenue, lease obligations and tax owed. Credit analysts more often use only interest-bearing debt: bank loans, bonds, notes and commercial paper. Both are called “debt-to-equity”, and they are not comparable with each other.

Where to find the inputs: all of them are on the balance sheet in a company’s annual 10-K or quarterly 10-Q. Debt does not change operating income, so two companies with $150 million of it each can report about $119 million and $63 million of net income if only one borrows.

A worked example

Apple’s balance sheet at 27 September 2025, from its 10-K as filed with the SEC:

Total liabilities to equity: $285.51 billion / $73.73 billion = 3.87.

Debt to equity: ($7.98 + $12.35 + $78.33) billion = $98.66 billion of debt, / $73.73 billion = 1.34.

Long-term debt to equity: $78.33 billion / $73.73 billion = 1.06.

Net debt to equity: $98.66 billion - $132.42 billion = -$33.76 billion, so net debt is negative and the ratio is -0.46. Apple held more cash and securities than it owed in borrowing.

One company, one date, four answers from 3.87 down to below zero. A screener that shows “D/E 3.87” and another that shows “1.34” are both right; they used different numerators.

Why Apple’s equity is so small for its size is the second half of the example. The next table is from the same company-facts file.

Debt rose 3.79% over those five years. Equity fell 62.20%, while Apple spent $387.37 billion repurchasing its own shares in fiscal 2018 to 2022. The ratio nearly tripled because the denominator shrank, not because the company borrowed much more.

What is a good debt-to-equity ratio?

There is no single good number, but there are typical ones. Among 447 large non-financial companies with positive equity at the end of 2025, on the total-liabilities version:

So is 0.5 good? It is low: only 7.16% of these companies were lower. Is 1.7 good? It is ordinary: the median was 1.84. Neither is “good” on its own, because the same ratio means different things in a utility and a software company, as the industry figures below show. These readings are for total liabilities; a debt-only ratio of 0.5 sits much higher up its own distribution, so match the version before comparing.

The original data

The sample: every filer in the SEC’s XBRL frames with total assets of at least $10 billion on its balance sheet closest to 31 December 2025, read on 1 November 2026: 915 filers. Left out are 13 with no industry code and 107 with no ticker in the SEC’s records (mostly subsidiaries, operating partnerships and Federal Home Loan Banks that file their own reports), and 65 whose equity is not reported for the same date as their assets. That leaves 730. Their balance sheet dates run from November 2025 to February 2026, because fiscal quarters end in different months. Liabilities here are total assets minus shareholders’ equity, so minority interests count as owed; the 551 companies that also report a total-liabilities figure on that date give the same median, 2.91, either way.

Median liabilities to equity by industry, end of 2025 (companies with positive equity):

The spread is the finding. The middle bank owed more than five times as much per dollar of equity as the middle manufacturer, and a bank at 7.68 was unremarkable while a manufacturer at 7.68 would have sat far above the middle half of its group. Construction has only 7 companies, a small sample, and one filer with an agriculture code is left out of the table. Each group includes the companies with negative equity in its count but not in its median.

Negative equity: 27 of the 474 non-financial companies (5.70%), meaning every group except banks, credit, insurance and real estate, which leaves no meaningful ratio for them. The list includes AbbVie, Philip Morris, McDonald’s, Lowe’s, Starbucks, Booking Holdings, Marriott, Hilton, AutoZone, O’Reilly Automotive, Otis and TransDigm. McDonald’s reported total assets of $59.52 billion and equity of -$1.79 billion at 31 December 2025. The other 447 had a median of 1.84, with the middle half between 1.01 and 3.21.

Apple across eleven fiscal years shows the buyback effect from the worked example as a line rather than two points: liabilities to equity went from 1.43 in fiscal 2015 to a peak of 5.96 in 2022 and 3.87 in 2025, and debt to equity from 0.54 to 2.37 and then 1.34.

Every company is in the sample file, the group medians in the industry file and Apple’s figures in the Apple file.

Why banks look so leveraged

A bank’s raw material is a liability. Customer deposits are money the bank owes back, so they sit on the liabilities side even though they are the core of the business. JPMorgan Chase carried liabilities of 11.21 times its equity and Bank of America 10.25 times at the end of 2025.

That is why bank leverage is judged on different measures. Bank regulators set capital requirements as ratios of capital to assets, many of them risk-weighted, rather than as a debt-to-equity limit, and a general screen that ranks banks alongside retailers on this ratio tells you mostly which companies are banks.

Utilities sit high for a different reason. Their revenue is set largely by regulators and their assets are long-lived plants and networks, so lenders accept more borrowing per dollar of equity: NextEra Energy was at 2.90 and Duke Energy at 2.78.

Short-term liquidity is a separate test from leverage; the median large US non-financial filer had a current ratio of 1.15 at year-end 2025, per current ratio.

What tells you more about trouble

Interest coverage. Operating profit divided by interest expense asks whether the company can pay for its borrowing, a question about income rather than balance sheet labels.

Debt to cash flow. How many years of operating cash flow would repay the debt; lenders often write their covenants on a version of this.

The maturity schedule. Borrowing becomes dangerous when it falls due and cannot be refinanced, so the dates in the debt note of the 10-K matter more than the total.

And fixed versus floating rates. Two companies with the same ratio can face very different interest bills when rates rise. Basic earning power sets the financing aside altogether, dividing operating income by total assets; Home Depot’s 19.88% ranked 20th of 381 large non-financial US companies in the fiscal 2025 sample.

When it fails

It fails across industries. The table above is the measurement: a ratio of 2.5 was below the middle half of banks and above the middle half of mining, oil and gas companies. A cross-industry screen that sets one cut-off for “too much debt” mostly sorts companies by sector.

It fails when equity is small or negative. Equity is a residual. When buybacks, dividends and losses have run it down, the ratio grows toward infinity and then flips sign, as it did for 27 large non-financial companies at the end of 2025. Starbucks reported equity of -$8.39 billion on 28 December 2025; its ratio says nothing about whether it can pay its debts.

It fails when the version is not stated. Apple’s 3.87 and 1.34 are the same balance sheet. Comparing one company’s total-liabilities ratio with another’s debt-only ratio is a comparison of formulas, not of companies.

It fails on what the balance sheet leaves out. Brands, software and customer relationships built in-house mostly do not appear as assets, so asset-light companies can show small equity and large ratios while lenders treat them as safe borrowers.

And it fails when read as a single number. A rising ratio at one company over several years, with the cause identified from the 10-K, carries more information than any one year’s figure compared with a rule of thumb.

Questions people ask

What is a good debt-to-equity ratio?

It depends on the industry and the version. On total liabilities, the median large non-financial company was at 1.84 at the end of 2025; the median bank was at 7.68 and the median mining, oil or gas company at 0.93.

Is a debt-to-equity ratio of 0.5 good?

It is low. Only 32 of 447 large non-financial companies with positive equity (7.16%) were below 0.5 on the total-liabilities version at the end of 2025. Low borrowing is not automatically better; it can also mean a company is not using cheap debt it could carry.

Is 1.7 a good debt-to-equity ratio?

It is close to typical. 46.09% of large non-financial companies were below 1.7 and the median was 1.84, so 1.7 sits near the middle of that group.

What does a negative debt-to-equity ratio mean?

That shareholders’ equity is below zero, so the ratio cannot be read as leverage. At the end of 2025 that applied to 27 of 474 large non-financial SEC filers, including McDonald’s, Lowe’s and Booking Holdings, each with total assets of $10 billion or more.

Should debt-to-equity use total liabilities or just debt?

Either, as long as it is stated and kept the same when comparing. Total liabilities gives the higher number: for Apple at fiscal 2025 year-end, 3.87 against 1.34.

Related

Debt ratio measures the same borrowing against total assets instead, which avoids the negative-equity problem. Shareholders’ equity explains what the denominator really holds. And leverage covers what borrowed money does to a sequence of returns.

This page is educational, not financial advice. Test every idea on your own charts before risking money.