Calculate the debt-to-equity ratio, debt ratio and interest coverage of a company. Enter your values; the result updates as you type, with the method shown below.
About this calculator
Debt ratios show how much a company relies on borrowed money. A moderate level of debt can boost returns, but too much makes the company fragile when sales fall or rates rise.
Enter total debt, equity, total assets, operating profit and interest expense. The calculator shows the debt-to-equity ratio, the debt ratio and the interest coverage.
When to use it
- Assessing a company’s financial risk.
- Preparing a loan application.
- Comparing capital structures.
- Studying corporate finance.
How to read the result
Debt-to-equity = debt / equity. Interest coverage = operating profit / interest; below about 2 is a warning sign.
Acceptable levels vary widely: utilities and real estate carry more debt than software companies.
Mistakes to avoid
- Comparing sectors with different norms.
- Ignoring leases and other debt-like items.
- Looking at debt without cash flow.
Formula
D/E = debt / equity Coverage = EBIT / interest
Worked example
Debt 300,000, equity 250,000: D/E 1.2; EBIT 60,000 and interest 12,000: coverage 5×.
Frequently asked questions
What D/E is safe?
Many lenders look for under 1 to 2, but it varies by sector.
What is interest coverage?
How many times operating profit covers interest.
Is gearing the same?
Yes, gearing usually means debt / equity.
What is a safe debt-to-equity ratio?
Often below 1 to 1.5, depending on the sector.
Why does interest coverage matter?
It shows how easily profits cover interest payments.
Is debt always bad?
No, it can finance growth if returns exceed its cost.
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Results are estimates for information only. Check important figures with a professional.