What debt-to-equity means

The last three posts looked at short-term coverage — can the company pay its bills over the next year? Debt-to-equity (D/E) shifts to the bigger, longer-term question: how is the business funded at all — by shareholders’ own money, or by borrowed money?

This series defines “debt” as interest-bearing borrowings only (term loans, bonds, working capital debt) — not every liability on the balance sheet. Trade payables, for instance, aren’t counted here, even though they’re technically a liability too; they showed up in their own right back in creditor days. Lease liabilities — which Indian accounting rules (Ind AS 116) put on the balance sheet for things like rented warehouses — are left out too; they sit on their own line, and some analysts add them back. Worth checking which definition any given source uses, since “debt” isn’t always defined the same way everywhere.

The formula

Debt-to-Equity = Total Borrowings / Total Equity

Worked example: Desi Bites Foods, FY25

  ₹ Lakh
Term Loan (Borrowings) 400
Equity 678
Debt-to-Equity 0.59

Worked example: Britannia Industries, FY25

From Britannia Industries’ audited consolidated FY25 results (year ended 31 March 2025, filed 8 May 2025). For illustration only.

  ₹ Crore
Total Borrowings 1,224.77
Total Equity 4,381.32
Debt-to-Equity 0.28

Britannia’s D/E of 0.28 is low leverage — far less reliant on borrowed money than Desi Bites’ 0.59. That matters for one specific reason worth remembering from the ROE post: debt is exactly the lever that can inflate ROE without the underlying business actually improving. Britannia’s ROE of 52.5% is high — and now we know borrowings aren’t what’s driving it. That’s not the whole leverage story, though: Britannia’s total assets are still about twice its equity, and the next post shows what’s funding the rest.

🧒 Explain it like I'm 10 (optional — skip if this is already clear)

If you buy a ₹10,000 bicycle using ₹8,000 of your own savings and a ₹2,000 loan from a friend, your debt-to-equity is ₹2,000 / ₹8,000 = 0.25 — mostly your own money, a little borrowed. If instead you put in only ₹2,000 and borrowed ₹8,000, your D/E flips to 4 — mostly borrowed. Same bicycle, very different amount of risk if something goes wrong and you can’t repay the loan.

Common mistakes

  • Comparing D/E across industries without adjusting for norms. Banks and NBFCs (non-banking financial companies) structurally run on very high D/E as part of their business model — comparing them to a manufacturer on this ratio alone is meaningless.
  • Treating all debt as equally risky. A low-interest, long-tenure loan is a very different risk from expensive, short-fuse borrowing — D/E captures the amount, not the quality, of the debt.
  • Assuming rising D/E is automatically bad. Taking on debt to fund genuinely value-accretive expansion (a new plant that will pay for itself) is a very different story from borrowing to cover operating losses — the reason behind the change matters more than the change itself.
  • Using D/E as the only leverage lens. As the next post shows, a company can carry very little interest-bearing debt and still be significantly “levered” through other liabilities — D/E alone doesn’t catch that.

Takeaway: debt-to-equity measures how much of a business is funded by borrowed money versus shareholders’ own. A low D/E next to a strong ROE, as at Britannia, tells you the return isn’t coming from borrowings — but other liabilities can still do the levering, so check the equity multiplier too.