what is a good debt to equity ratio

The optimal debt-to-equity ratio varies widely by industry, but the general consensus is that it should not be above a level of 2.0. However, some very large companies in fixed asset-heavy industries, such as mining or manufacturing, may have ratios higher than 2, but these are the exception rather than the rule. A lower debt-to-equity ratio is generally preferred as it indicates less debt on a companys balance sheet. However, this will also vary depending on the stage of the companys growth and its industry sector. Newer and growing companies often use debt to fuel growth, for instance. Debt-to-equity ratios should always be considered on a relative basis compared to industry peers or to the same company at different points in time. What counts as a “good” debt-to-equity (D/E) ratio will depend on the nature of the business and its industry. Generally speaking, a D/E ratio below 1 would be seen as relatively safe, whereas values of 2 or higher might be considered risky. Companies in some industries, such as utilities, consumer staples, and banking, typically have relatively high D/E ratios.