The debt-to-equity ratio divides a company’s total liabilities by its total shareholders’ equity, showing how much of the company is financed by debt relative to how much is financed by shareholders’ own capital.
For example, a company with RM300 million in total liabilities and RM200 million in shareholders’ equity has a debt-to-equity ratio of 1.5 — for every ringgit of equity, the company carries RM1.50 of debt.
This ratio is a standard risk filter because higher leverage means a company has less buffer to absorb a downturn in earnings before struggling to meet its obligations. It also affects other metrics — a high debt-to-equity ratio can artificially inflate return on equity by shrinking the equity base, which is why the two are usually checked together.