What does the debt-to-equity ratio measure?

The debt-to-equity ratio is a financial metric that evaluates a company’s financial leverage by comparing its total liabilities to its shareholder equity. This ratio provides insight into how much debt a company is using to finance its assets relative to the value of its shareholders' equity. A higher ratio indicates that a company is using more debt relative to equity, which may suggest a higher risk but can also signify greater potential returns if the investment generates enough income to cover the debt servicing costs. On the other hand, a lower ratio often signifies a more conservative approach to financing and may indicate less risk but potentially lower returns.

Understanding this ratio is essential for investors and stakeholders in real estate investment trusts (REITs) and property management because it reflects the financial health and leverage of the company, helping them assess its ability to manage debt and fund growth through equity.