What is a good debt-to-equity ratio?

There is no universal standard. A D/E ratio below 1.0 is generally considered conservative, while above 2.0 may signal higher risk. However, acceptable levels vary by industry -- utilities and banks routinely operate at higher leverage than technology companies. Always compare a company's D/E to its sector peers.

Can a company have a negative debt-to-equity ratio?

Yes. A negative D/E ratio occurs when shareholders' equity is negative, meaning accumulated losses exceed the company's capital base. Boeing experienced this in several quarters of 2025. A negative D/E signals severe financial stress and means the company owes more than it owns on a book value basis.

How do rising interest rates affect companies with high D/E ratios?

Rising rates increase the cost of servicing existing variable-rate debt and make refinancing maturing fixed-rate debt more expensive. Companies with high D/E ratios face disproportionate margin pressure because a larger share of their capital structure is exposed to interest expense increases. This is why Boeing's interest coverage ratio fell below 1.0 in 2025.

What is the difference between debt-to-equity and debt-to-assets?

Debt-to-equity divides total debt by shareholders' equity, while debt-to-assets divides total debt by total assets. The key difference is the denominator: equity can be very small or negative (producing extreme D/E ratios), while total assets provide a more stable base. Boeing's D/E of 9.92 versus its debt-to-assets of 0.32 illustrates this divergence.

Should I avoid all stocks with high debt-to-equity ratios?

Not necessarily. Some industries like banking and utilities require high leverage to operate. The key is whether the company generates enough cash flow to comfortably service its debt. Look at interest coverage, free cash flow yield, and net debt-to-EBITDA alongside D/E to assess whether leverage is sustainable or dangerous.

Debt-to-Equity Ratio: What Leverage Reveals

Every company needs capital to grow, but how a company funds itself -- through debt or equity -- tells investors a great deal about its risk profile, strategic priorities, and vulnerability to rising interest rates. The debt-to-equity ratio, one of the most widely cited leverage metrics in fundamental analysis, distils that capital structure into a single number.

With the federal funds rate at 3.64% as of January 2026 and the 10-year Treasury yield hovering near 4.02%, borrowing costs remain elevated by recent historical standards. That makes leverage analysis more consequential than it has been in over a decade. Companies carrying heavy debt loads face real margin pressure, while conservatively financed firms enjoy a strategic advantage. Understanding the debt-to-equity ratio is essential for any investor navigating this environment.

What the Debt-to-Equity Ratio Measures

The debt-to-equity (D/E) ratio measures the proportion of a company's total debt relative to its shareholders' equity. The formula is straightforward:

D/E Ratio = Total Debt / Total Shareholders' Equity

Total debt typically includes both short-term borrowings and long-term debt obligations. Shareholders' equity represents the residual value of assets after all liabilities are subtracted -- essentially what shareholders would receive if the company liquidated everything and paid off all creditors.

A D/E ratio of 1.0 means a company has equal parts debt and equity financing. Below 1.0 indicates more equity than debt (conservative financing), while above 1.0 means the company relies more heavily on borrowed money. The ratio captures a fundamental trade-off: debt is cheaper than equity because interest payments are tax-deductible, but excessive debt increases the risk of financial distress or bankruptcy.

Importantly, the D/E ratio is a balance sheet snapshot. It reflects a company's capital structure at a specific point in time, not a trend. Investors should track it across multiple quarters to identify whether leverage is rising, falling, or stable. A single reading can be misleading -- seasonal borrowing, one-time debt issuances, or share buybacks that reduce equity can all distort the picture.

Leverage Across Sectors: Why Context Matters

There is no universal "good" debt-to-equity ratio. What counts as healthy leverage varies dramatically by industry, because different sectors have fundamentally different capital requirements, cash flow stability, and asset bases.

Consider four companies reporting in early 2026. Apple ([AAPL](/stocks/AAPL)) carries a D/E ratio of 1.03, moderate for a technology company with $263.72 in share price and nearly $3.9 trillion in market capitalisation. Apple's leverage is intentional -- the company borrows at favourable rates to fund buybacks rather than repatriating overseas cash. ExxonMobil ([XOM](/stocks/XOM)), trading at $155.85 with a D/E of just 0.27, represents the conservatively financed end of the energy sector. Oil and gas companies face volatile commodity prices, so lower leverage provides a buffer during downturns.

Debt-to-Equity Ratios by Company (Q4 2025)

At the extreme end sits Boeing ([BA](/stocks/BA)), with a staggering D/E ratio of 9.92 in Q4 2025. Boeing's negative or near-zero equity base -- the result of years of losses, write-downs, and aggressive buybacks before its 737 MAX crisis -- produces a dramatically elevated ratio. A PE ratio of 92.03 reflects the market pricing in a long recovery arc. JPMorgan Chase ([JPM](/stocks/JPM)), at a D/E of 1.38, illustrates how banks operate differently: financial institutions are inherently leveraged, using deposits and wholesale funding to make loans. A D/E of 1-3 is typical for a well-capitalised bank.

The lesson is clear: always compare a company's D/E ratio to its sector peers, not to an abstract benchmark.

Interest Rates and the Cost of Leverage

The debt-to-equity ratio becomes especially important when interest rates are elevated. The Federal Reserve's effective funds rate has declined from 4.33% in August 2025 to 3.64% in January 2026, a 69 basis-point easing. The 10-year Treasury yield sits at 4.02% as of late February 2026. While rates have moved off their cycle highs, they remain well above the near-zero levels that prevailed from 2020 to early 2022.

Federal Funds Rate Trend (Aug 2025 - Jan 2026)

For highly leveraged companies, elevated rates mean higher interest expenses that directly reduce net income. Boeing, with over $71 per share in interest-bearing debt, faces annual interest costs that consume a significant share of operating cash flow. In Q2 2025, Boeing's interest coverage ratio was a deeply negative -0.36, meaning operating income did not even cover interest payments. By Q1 2025, it was barely positive at 0.68. That fragility explains why highly leveraged companies often see their stock prices respond sharply to Fed rate decisions.

Conversely, Apple's interest coverage and low-cost debt structure mean that rate movements have minimal impact on its profitability. ExxonMobil, with its 0.27 D/E ratio, could absorb meaningful rate increases without material financial strain. The [return on equity](/learn/return-on-equity-roe-what-it-tells-investors) framework helps investors understand whether borrowed capital is being deployed productively -- a high-leverage company generating strong ROE may justify its debt, while one with both high leverage and weak returns is a warning sign.

D/E vs Other Leverage Metrics

The debt-to-equity ratio is powerful but not comprehensive. Investors should pair it with complementary metrics to build a complete picture of financial health.

Debt-to-assets divides total debt by total assets, showing what percentage of a company's asset base is financed by borrowing. Apple's debt-to-assets ratio is 0.24, meaning roughly a quarter of its assets are debt-financed. Boeing's stands at 0.32 -- lower than its D/E ratio suggests, because the denominator (total assets) is much larger than equity. This illustrates how companies with thin or negative equity can have a sky-high D/E ratio while their debt-to-assets ratio appears more moderate.

Interest coverage ratio measures how many times operating income can cover interest expenses. It answers a practical question: can the company service its debt? ExxonMobil's interest coverage of 44.3 in Q3 2025 signals enormous capacity to pay interest. JPMorgan's 0.72 interest coverage requires careful interpretation -- bank economics differ because interest expense is also a core cost of their lending business, not purely a leverage concern.

Net debt-to-EBITDA adjusts for cash holdings and uses earnings before interest, taxes, depreciation, and amortisation. Apple's net debt-to-EBITDA of 0.83 confirms its leverage is very manageable relative to earnings power. Boeing's 4.54 signals years of earnings needed to pay down net debt.

No single ratio tells the whole story. The D/E ratio identifies the capital structure; interest coverage reveals whether a company can service that debt; and net debt-to-EBITDA shows how long it would take to pay it off. Used together, they form a robust leverage assessment framework.

How to Use D/E in Your Investment Process

For individual investors, the debt-to-equity ratio works best as a screening and monitoring tool rather than a standalone buy/sell signal.

Screening: Filter out companies with D/E ratios far above their sector median. In technology, a D/E above 2.0 warrants investigation. In utilities or real estate, ratios of 1.5-2.5 may be perfectly normal given stable, regulated cash flows. For energy companies like ExxonMobil, a low D/E of 0.27 combined with a PE of 23.3 and a 52-week high of $159.35 suggests a company well-positioned to weather commodity volatility.

Trend monitoring: Track how D/E evolves quarter to quarter. Apple's D/E declined from 1.52 in Q4 FY2025 to 1.03 in Q1 FY2026, reflecting both debt reduction and equity growth. That improving trend is a positive signal. Boeing's trajectory is more complex -- negative equity in mid-2025 made the ratio mathematically meaningless, before a Q4 2025 return to positive equity produced the 9.92 reading.

Rate sensitivity analysis: In a 4% rate environment, map each portfolio holding's leverage. Companies with high D/E ratios and upcoming debt maturities face refinancing risk. Companies with low D/E and strong free cash flow -- like ExxonMobil at $1.21 free cash flow per share in Q4 2025 or Apple at $3.50 per share -- have the flexibility to invest, acquire, or return capital to shareholders regardless of rate movements. Examining a company's free cash flow alongside its D/E ratio provides a fuller picture of financial resilience.

Conclusion

The debt-to-equity ratio remains one of the most essential tools in an investor's analytical toolkit. It distils a company's entire capital structure into a single number that, when interpreted in context, reveals how much financial risk shareholders are absorbing. In a market where the federal funds rate sits at 3.64% and 10-year yields hover above 4%, leverage analysis is not an academic exercise -- it directly impacts margins, valuations, and downside risk.

The four companies examined here illustrate the full spectrum. ExxonMobil's 0.27 D/E ratio represents fortress-level conservatism. Apple's 1.03 reflects deliberate, well-managed leverage. JPMorgan's 1.38 is structural to banking. Boeing's 9.92 is the result of years of financial strain. None of these numbers is inherently good or bad without the context of sector norms, interest coverage, and cash flow generation.

As the Fed continues its easing cycle and the interest rate environment evolves through 2026, investors who understand leverage metrics will be better equipped to distinguish between companies that can thrive and those that merely survive. The debt-to-equity ratio is where that analysis begins.

Frequently Asked Questions

Sources & References

FMP Key Metrics - Apple Inc.

financialmodelingprep.com

FMP Key Metrics - ExxonMobil

financialmodelingprep.com

FMP Key Metrics - Boeing

financialmodelingprep.com

FMP Key Metrics - JPMorgan Chase

financialmodelingprep.com

FRED - Federal Funds Effective Rate

fred.stlouisfed.org

FRED - 10-Year Treasury Constant Maturity Rate

fred.stlouisfed.org

Debt-to-Equity Ratio: What Leverage Reveals

Key Takeaways

What the Debt-to-Equity Ratio Measures

Leverage Across Sectors: Why Context Matters

Debt-to-Equity Ratios by Company (Q4 2025)

Interest Rates and the Cost of Leverage

Federal Funds Rate Trend (Aug 2025 - Jan 2026)

D/E vs Other Leverage Metrics

How to Use D/E in Your Investment Process

Conclusion

Frequently Asked Questions

Sources & References

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