The debt-to-equity ratio is a fundamental measure of financial leverage that shows how much debt a company uses relative to its equity to finance operations. Investors, lenders, and analysts use this ratio to evaluate a company's capital structure, risk level, and ability to take on additional debt.

The formula is: D/E Ratio = Total Debt / Total Equity. The equity multiplier, calculated as (Total Debt + Total Equity) / Total Equity, shows total assets per dollar of equity. A related metric, the debt ratio, expresses debt as a percentage of total capital: Debt Ratio = Total Debt / (Total Debt + Total Equity) x 100.

For example, a company with $1,200,000 in total debt and $2,000,000 in equity has a D/E ratio of 0.60x, meaning it uses 60 cents of debt for every dollar of equity. The equity multiplier is 1.60x, and the debt ratio is 37.5%. This is a moderately conservative capital structure. Industries like utilities and real estate typically operate with higher D/E ratios, while technology companies often carry less debt.