The Debt/Equity ratio simply takes all the company’s debt and divides it by that equity number. As you can quickly see, a low Debt/Equity ratio is a good thing. In fact, you’ll find many companies that have a Debt/Equity ratio of zero. At the same time, you’ll find numerous companies that have a Debt/Equity ratio of 5 or higher. For a company that has a Debt/Equity ratio of 5, that means it’s got 5 times more debt than it has equity in the business. For me, that’s a scary amount of debt and not something I want to take a chance on.
