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Explanation: The Debt-to-Equity (D/E) ratio is a financial metric that measures the proportion of a company’s financing that comes from debt compared to equity. It indicates the extent to which a company’s operations are funded by debt versus shareholder equity. A higher D/E ratio suggests higher financial leverage and greater reliance on debt financing, which can increase financial risk.
Example: Vedanta reported a D/E ratio of 2.04 in FY23. This means that for every rupee of equity financing, Vedanta had 2.04 rupees of debt financing during the fiscal year. Analysing the D/E ratio helps assess the company’s capital structure and financial risk. A higher D/E ratio may indicate higher financial leverage and risk, as well as increased interest expenses, while a lower ratio suggests a more conservative capital structure with less reliance on debt financing.
You can view the D/E value for any company on Radar under the Solvency Ratios in the Ratios section.