Why do Debt to Equity Ratios Vary From Industry to Industry?

Modified on Tue, 10 Jul 2018 at 12:46 PM

Some of the major reasons why the debt/equity (D/E) ratio varies significantly from one industry to another, and even between companies within an industry, include different capital intensity levels between industries and whether the nature of the business makes carrying a high level of debt relatively easier to manage.

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

The Debt/Equity Ratio

The D/E ratio is a basic metric used to assess a company's financial situation. It indicates the relative proportion of equity and debt that a company uses to finance its assets and operations. The ratio reveals the amount of financial leverage a company is utilizing.

The formula used to calculate the ratio divides a company’s total liabilities by the total amount of shareholder equity in the company.

Source : Investopedia

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