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Debt-to-equity ratio

How much a company relies on borrowing.

The formulaDebt-to-equity = total debt ÷ shareholders' equity

Example

A company with 40,000,000 rials of debt and 50,000,000 of equity:

Ratio40,000,000 ÷ 50,000,000 = 0.8

For every rial of shareholders' money there are 0.80 rials of debt. High debt magnifies profits in good times — and losses in bad times.

Sharia screening uses similar ratios (such as interest-bearing debt against market value or total assets), with limits set by the chosen standard.

All content on this site is for educational purposes only and is not investment advice or a recommendation. Past performance does not guarantee future results. Consult a licensed adviser before making any investment decision.