Definition
Debt to equity compares total debt to total equity to show how leveraged a balance sheet is.
Formula
Debt to equity = total debt / total equity
Example
Total debt $2M and equity $4M gives D/E = 0.5.
How to use it
- Track trends over time rather than a single snapshot.
- Compare to peers with similar growth and cash flow profiles.
Common mistakes
- Using book equity without noting large fair value adjustments.
- Comparing companies with very different revenue visibility.
Measured as
Debt to equity = total debt / total equity
Misused when
- Using book equity without noting large fair value adjustments.
- Comparing companies with very different revenue visibility.
Operator takeaway
- Track trends over time rather than a single snapshot.
- Compare to peers with similar growth and cash flow profiles.
- Tie Debt to Equity (D/E) to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Fundraising & valuation hub: pre/post-money, SAFEs, notes, and liquidation prefs if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Debt to Equity (D/E) belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Fundraising & valuation hub: pre/post-money, SAFEs, notes, and liquidation prefs: A practical hub for startup fundraising and valuation basics: pre/post-money, pro rata, option pool shuffle, SAFE/note conversion, and liquidation preference outcomes.