In risk analysis, a way to determine a company's
leverage. The ratio is calculated by taking the company's
long-term debt and dividing it by the
value of its
common stock. Put graphically:
Debt/equity ratio = Long-term debt / Common stock
The greater a company's leverage, the higher the ratio. Generally, companies with higher ratios are thought to be more
risky because they have more liabilities and less
equity. See also:
Long-Term Debt/Capitalization Ratio.