Debt-equity ratio

The debt-equity ratio shows how much leverage, or debt, a company is carrying compared with shareholders’ equity.

For instance, if a company has a billion dollars in shareholders’ equity and $100 million in debt, its debt-equity ratio is 0.1, or 10%, which is quite low.

In general, the lower this figure the better, although the definition of an acceptable debt load varies from industry to industry. You’ll find data on debt in annual reports, Value Line, Moody’s and S&P publications, plus in stock reports provided by the on-line services.

Value Sign #6: Stick with companies whose debts amount to no more than 35% of shareholders’ equity.

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