Do you know your debt-to-equity ratio and what it says about your business?
What is the debt-to-equity ratio?
Your debt-to-equity ratio is one of the clearest signals of your company’s stability and scalability.
The formula is simple: Total Liabilities ÷ Total Equity. You’ll find both numbers on your balance sheet.
Debt-to-Equity = Total Liabilities / Total Equity
Need a quick way to calculate your D/E ratio? Use our debt-to-equity ratio calculator:
CEOs should view their debt-to-equity (D/E) ratio as more than an abstract finance metric that’s regularly reviewed in your monthly financial reports; it’s effectively a measure of your buffer for resilience. A healthy D/E ratio (which varies by industry, of course) means you have the flexibility to weather higher costs or a few bad quarters without scrambling for cash.
Debt-to-equity ratio industry benchmarks
So what’s “healthy”?
In most cases, you want shareholders financing more of your growth than your lenders. A debt-to-equity ratio of 2.0 or less is a common benchmark.
But if you’re in an asset-heavy industry like manufacturing, consumer products, or eCommerce, ratios spiking up to 5.0 aren’t unusual. The right balance depends on your industry, your growth stage, and your capital strategy.
The overall D/E rose slightly in 2024–2025, possibly reflecting a general uptick in leverage across sectors due to interest rate environments or refinancing trends. That might not be the feeling though across industries. Here’s a snapshot:
D/E ratios in today’s economy: What CEOs should be watching
Manufacturing
No sector illustrates the current crosswinds better than manufacturing. U.S. manufacturers are essentially caught in a perfect storm of tariff costs, softer demand, and uncertainty. the priority is risk management and cost control. Many manufacturers have scaled back or delayed investments; new factory construction spending was down ~6.7% year-over-year by mid-2025.
Pro Tip: If your firm’s D/E ratio is on the high side, you’ll want to stress-test your plans for various tariff scenarios.
One silver lining: not all is doom and gloom. Some forward-looking manufacturers are investing in productivity and tech despite the headwinds. Spending on artificial intelligence and business process automation has jumped.
For now, control costs, conserve cash, and avoid heavy new debt until there’s clearer visibility. If you’re a CEO in this space, it might not be the year to build that shiny new plant – focus on strengthening the balance sheet and supply chain resiliency so you’re ready when the clouds part. Learn more about NetSuite for Manufacturing.
Wholesale Distribution
When tariffs or price inflation hit, a wholesale distributor with a lean balance sheet can often pass costs through or ride out short-term margin hits better than a manufacturer with large fixed costs.
Pro Tip: If inflation is raising your product costs, communicate with customers and adjust pricing smartly
So, CEOs in wholesale distribution should continue the playbook that’s been working: mind your cash conversion cycle (inventory and receivables), avoid over-borrowing, and use your nimbleness to adapt to market changes.
E-Commerce & Retail
For e-commerce players, an additional watch item is the cost of capital for growth. Many online-first companies relied on cheap capital to fuel aggressive expansion. Now, with capital more expensive, we’re seeing a bit of a reality check. Growth plans are being tempered to prioritize profitability.
Pro Tip: Stay close to your consumer data and be ready to adjust pricing, inventory, and promotions quickly. Use technology to your advantage. The companies investing in AI for demand forecasting like what you get with NetSuite vs. QuickBooks, are seeing better conversion rates and inventory turns.
Tariffs and your D/E ratio
Tariffs have become the plot twist no one asked for.
Under the current administration’s import duties (now at century-high levels), manufacturers report business conditions as “much worse than the Great Recession” in some cases.
Pro Tip: Don’t think of your debt-to-equity ratio as a static number.
It’s is reflection of how prepared your business is to weather today’s headwinds.
Here’s the nuance: with chatter about tariffs and supply chains under pressure, many CFOs see 2025 as an exercise in risk management: juggling cost pressures, geopolitical curveballs, and the ever-present question of “are we heading into a recession or not?” The consensus from finance leaders is to stay agile.
Higher Rates Mean Pricier Debt
With interest rates having been elevated over the past year, companies have become more mindful of their debt loads. Simply put, debt got expensive and finance chiefs have been responding accordingly.
A lot of business leaders chose to pay down debt rather than refinance at higher borrowing rates. This deleveraging trend drove corporate debt-to-equity ratios down from their pandemic highs as firms used cash to retire debt. In fact, by late 2022, median D/E ratios for both investment-grade and high-yield companies had fallen below pre-COVID levels. Fast-forward to 2025, and that conservative mindset remains: if you’ve got excess cash, knocking down your debt is a common move to fortify the balance sheet.
Why strategic debt management matters
At the same time, interest rates are still elevated, which means debt is more expensive to carry than it was just a few years ago. Paying it down sounds smart, but drain too much cash and you’ll struggle to respond to sudden cost spikes (like a tariff increase, shipping surcharge, or other supply chain cost).
This is where strategy matters:
- Pay down the highest-interest debt first. Or look into refinance strategies to lower interest rates and increase cash flow.
- Preserve enough cash to stay agile when trade costs shift.
- Use debt selectively to invest in areas that increase efficiency or margin: like automation, equipment upgrades, or strategic acquisitions.
Pro Tip: Not all debt is bad. Used strategically, debt can fuel growth and even save you money compared to equity.
In uncertain times, the goal is to manage debt wisely. A debt-to-equity ratio that looks “high” on paper might be perfectly reasonable if you’re investing in growth and resilience. Plus, interest on business loans is tax-deductible, making debt a cheaper form of capital in many cases.
Smart uses of debt might include:
- Acquiring a business to scale faster
- Funding marketing or customer success initiatives
- Purchasing equipment to streamline operations
In these scenarios, a higher ratio isn’t a red flag, it’s a sign you’re investing in growth. And if economists are right and we see rate cuts, why rush to pay off a 7% loan today if you suspect you could refinance it at 5% next year.
The takeaway for CEOs: coordinate with your CFO on the timing of debt moves – 2025 may offer windows to refinance or restructure for savings, especially if the Fed starts cutting rates in earnest.
Get in touch to learn more about how our outsourced CFO services can help you master a debt management strategy for today’s economy.
