13

Debt-to-equity (D/E) ratio

Strategic perspective

Financial perspective

Key performance question this indicator helps to answer

To what extent are we financing our business through debts versus equity?

Why is this indicator important?

As discussed in the previous KPIs, companies can finance their operations either through investments from shareholders (equity) or by taking on debt. Understanding the proportion that is financed by debt as opposed to shareholders’ equity is the debt-to-equity (D/E) ratio and a key indicator of the financial position of a company.

If a company has more debts than equity (sometimes also referred to as high leverage or gearing), it generally means that it has been aggressive in financing its growth with debt. ...

Get Key Performance Indicators (KPI) now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.