Debt to equity ratio by industry (2024)

FAQs

What is the ideal debt-to-equity ratio by industry? ›

The optimal debt-to-equity ratio will tend to vary widely by industry, but the general consensus is that it should not be above a level of 2.0. While some very large companies in fixed asset-heavy industries (such as mining or manufacturing) may have ratios higher than 2, these are the exception rather than the rule.

The industries that typically have the highest D/E ratios include utilities and financial services. Wholesalers and service industries are among those with the lowest.

Generally, a lower ratio is better, as it implies that the company is in less debt and is less risky for lenders and investors. A debt-to-equity ratio of 0.5 or below is considered good.

Generally speaking, a debt-to-equity ratio of 1.5 or less is considered good. A high debt-to-equity ratio indicates that a company funds its operations and growth primarily with debt, indicating a higher risk profile because they have more debt to repay.

From a pure risk perspective, debt ratios of 0.4 or lower are considered better, while a debt ratio of 0.6 or higher makes it more difficult to borrow money. While a low debt ratio suggests greater creditworthiness, there is also risk associated with a company carrying too little debt.

Amazon.com Debt to Equity Ratio: 0.266 for March 31, 2024.

Average Debt to Equity Ratio by Industry

For example, capital-intensive industries such as utilities and telecommunications tend to have higher debt to equity ratios, while technology and healthcare companies typically have lower ratios.

The most indebted companies were in the oil and gas, utilities, telecommunication and automotive industries. The world's most indebted company in 2021 was Toyota. The most indebted company in history was General Electric, holding in 2008 556$bn in debt.

Generally, a good debt-to-equity ratio is less than 1.0, while a risky debt-to-equity ratio is greater than 2.0.

What is a good debt-to-equity ratio? Although it varies from industry to industry, a debt-to-equity ratio of around 2 or 2.5 is generally considered good.

What is an acceptable level for debt-to-equity ratio? ›

The maximum acceptable debt-to-equity ratio for more companies is between 1.5-2 or less. Large companies having a value higher than 2 of the debt-to-equity ratio is acceptable. 3. A debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations.

The industries with the highest debt-to-equity ratios tend to be those requiring large capital expenditures and infrastructure investment such as energy production, telecommunications, and utilities.

The ideal debt to equity ratio is 2:1. This means that at no given point of time should the debt be more than twice the equity because it becomes riskier to pay back and hence there is a fear of bankruptcy.

For lenders and investors, a high ratio (typically above 2) typically means a riskier investment because the business might not be able to make enough money to repay its debts. If a debt ratio is lower - closer to zero - this often means the business hasn't relied on borrowing to finance operations.

The current ratio measures a company's capacity to pay its short-term liabilities due in one year. The current ratio weighs a company's current assets against its current liabilities. A good current ratio is typically considered to be anywhere between 1.5 and 3.

To calculate the D/E ratio, divide a firm's total liabilities by its total shareholder equity—both items are found on a company's balance sheet. The company's capital structure is the driver of the debt-to-equity ratio. The more debt a company uses, the higher the debt-to-equity ratio will be.

This ratio is crucial in the oil and gas industry because companies often rely on debt to finance their expensive exploration and production activities. As of 2023, the industry average debt-to-equity ratio stands at about 0.5, reflecting a relatively moderate level of financial leverage.

What counts as a good debt ratio will depend on the nature of the business and its industry. Generally speaking, a debt-to-equity or debt-to-assets ratio below 1.0 would be seen as relatively safe, whereas ratios of 2.0 or higher would be considered risky.