what should be the Debt/Equity ratio for a company?



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Hi Sir,

I wanted know what should be the Debt/Equity ratio for a company? Should it be less or greater than 1? IF less what decision or strategy one should adopt or more what one should think?

1 Answer(s)


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There is no 1 right Debt/Equity ratio for a company. It varies from industry to industry. Technology companies will have a very low ratio since they hardly have any debt. Manufacturing and retail companies will have a high ratio since they rely a lot on debt for expansion.

Sometimes a higher Debt/Equity ratio could indicate better ROI for the equity shareholders since the company is funding its expansion through debt. But if the ratio gets too high then the company will have challenges paying back its interest on the debt.

Typically a high cash flow company could safely have a higher Debt/Equity ratio.

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