The debt to equity ratio is calculated by dividing total liabilities by total shareholders’ equity. Both numbers are found on a company’s balance sheet.
The debt to equity ratio is a solvency ratio that describes a firm’s capital structure, i.e. the proportion of debt financing vs. equity financing. Therefore, it is also considered a financial leverage ratio.
In general, the higher the debt to equity ratio, the riskier the firm when it comes to a crisis.
Another thing to consider is the type of debt. Bank debt can be called in anytime, and is therefore the riskiest type of debt.