What does debt to equity ratio of 0.4 mean? (2024)

What does debt to equity ratio of 0.4 mean?

As it relates to risk for lenders and investors , a debt ratio at or below 0.4 or 40% is low. This shows minimal risk, potential longevity and strong financial health for a company. Conversely, a debt ratio above 0.6 or 0.7 (60-70%) is a higher risk and may discourage investment.

Is 0.4 debt-to-equity ratio good?

In general, many investors look for a company to have a debt ratio between 0.3 and 0.6. From a pure risk perspective, debt ratios of 0.4 or lower are considered better, while a debt ratio of 0.6 or higher makes it more difficult to borrow money.

What does a debt ratio of 0.4 mean?

Interpreting the Debt Ratio

If the ratio is below 1, the company has more assets than debt. Broadly speaking, ratios of 60% (0.6) or more are considered high, while ratios of 40% (0.4) or less are considered low.

What does 0.5 debt-to-equity ratio mean?

The lower value of the debt-to-equity ratio is considered favourable, as it indicates a reduced risk. So, if the ratio of debt to equity is 0.5, that means that the company has half its liabilities because it has equity.

Is a .5 debt-to-equity ratio good?

Generally, a good debt-to-equity ratio is less than 1.0, while a risky debt-to-equity ratio is greater than 2.0. But this is relative—there are some industries in which companies regularly leverage more debt. The debt-to-equity ratio by itself won't give you enough information to make an educated investment decision.

What is the best debt to equity ratio?

The optimal debt-to-equity ratio will tend to vary widely by industry, but the general consensus is that it should not be above a level of 2.0. While some very large companies in fixed asset-heavy industries (such as mining or manufacturing) may have ratios higher than 2, these are the exception rather than the rule.

Is a debt to equity ratio of 4 bad?

The maximum acceptable debt-to-equity ratio for more companies is between 1.5-2 or less. Large companies having a value higher than 2 of the debt-to-equity ratio is acceptable. 3. A debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations.

What is a bad debt to equity ratio?

What is a bad debt-to-equity ratio? When the ratio is more around 5, 6 or 7, that's a much higher level of debt, and the bank will pay attention to that. “It doesn't mean the company has a problem, but you have to look at why their debt load is so high,” says Lemieux.

How do you interpret debt-to-equity ratio?

Your ratio tells you how much debt you have per $1.00 of equity. A ratio of 0.5 means that you have $0.50 of debt for every $1.00 in equity. A ratio above 1.0 indicates more debt than equity. So, a ratio of 1.5 means you have $1.50 of debt for every $1.00 in equity.

What does a debt ratio of 0.45 mean?

For example, if a company's debt-to-capital ratio is 0.45, it means 45% of its capital comes from debt. In such a case, a lower ratio is preferred, as it implies that the company can pay for capital without relying so much on debt.

What happens when debt-to-equity ratio is zero?

While this may sound like an attractive financial position, it's not necessarily always good. On the positive side, a zero debt-to-equity ratio can mean that a company has a strong financial position, is not burdened with debt payments, and has greater flexibility in its financial management.

What does a debt-to-equity ratio of 0.2 mean?

Debt to Equity Ratio = Liabilities / Equity. For example, if a company has $1 million in debt and $5 million in shareholder equity, then it has a debt-to-equity ratio of 20% (1 / 5 = 0.2). For every dollar of stockholder equity, the company has 20 cents of debt.

Is 0.00 a good debt-to-equity ratio?

Generally speaking, a debt-to-equity ratio of between 1 and 1.5 is considered 'good'. A higher ratio suggests that debt is being used to finance business growth. This is considered a riskier prospect. But really low ratios that are nearer to 0 aren't necessarily better.

What is a healthy debt ratio?

35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.

What is the debt-to-equity ratio of Apple?

31, 2023.

How much debt is OK for a small business?

How much debt should a small business have? As a general rule, you shouldn't have more than 30% of your business capital in credit debt; exceeding this percentage tells lenders you may be not profitable or responsible with your money.

Is a debt-to-equity ratio of 0.75 good?

Good debt-to-equity ratio for businesses

Many investors prefer a company's debt-to-equity ratio to stay below 2—that is, they believe it is important for a company's debts to be only double their equity at most. Some investors are more comfortable investing when a company's debt-to-equity ratio doesn't exceed 1 to 1.5.

What does equity ratio tell you?

What is Equity Ratio? The equity ratio is a financial metric that measures the amount of leverage used by a company. It uses investments in assets and the amount of equity to determine how well a company manages its debts and funds its asset requirements.

What is the debt-to-equity ratio example?

Debt to Equity Ratio Calculations:

Suppose a Company XYZ Ltd. has total liabilities of Rs 3,000 crore. It has shareholders equity of Rs 15,000 crore. Using the Debt to Equity Ratio formula, you get: Debt to Equity Ratio = 3,000 / 15,000 = 0.2.

Is 1.4 a good debt-to-equity ratio?

The D/E ratio can vary as per the industry and various other factors that influence the company's performance. However, it is generally agreed that a debt-to-equity ratio between 1.5 to 2.5 indicates a financially stable company with a low risk profile.

What is a debt ratio of 4?

If your company has $100,000 in business loans and $25,000 in retained earnings, its debt-to-equity ratio would be 4. This is because $100,000 (total liabilities) divided by $25,000 (total equity) is 4 (debt ratio). This would be considered a high-risk debt ratio and a risky investment.

What if debt-to-equity ratio is less than 1?

The debt to equity ratio shows a company's debt as a percentage of its shareholder's equity. If the debt to equity ratio is less than 1.0, then the firm is generally less risky than firms whose debt to equity ratio is greater than 1.0.

What is too high for debt to ratio?

Key takeaways

Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.

What is McDonald's debt-to-equity ratio?

McDonald's Debt to Equity Ratio: -8.359 for Dec. 31, 2023

View and export this data back to 1984.

Why does Starbucks have a negative debt-to-equity ratio?

Some major, profitable companies have recently had negative shareholders' equity, including well-known restaurant chains: McDonald's, Starbucks, and Papa John's. The primary driver in these cases may have been issuing massive debt and refranchising or selling corporate-owned stores to franchisees.