Debt to equity

Total borrowings divided by shareholders' equity. The most quoted leverage measure and the one most sensitive to definitional choices.

A firm with ₹1,420 crore of debt and ₹3,300 crore of equity is at 0.43 times.

Three questions decide the number. Whether lease liabilities count, which after the accounting change they generally should. Whether to net off cash, which gives a very different picture for a company holding a large treasury. And whether equity includes non-controlling interests, which matters for groups with large partly-owned subsidiaries.

Acceptable levels are entirely sectoral. A software firm at 0.4 is unusually levered; a utility at 1.5 is conservatively funded.

Compare within the sector, and say what you counted.

For an Indian company two adjustments change the answer materially. Lease liabilities belong in debt after the accounting change, which moves retailers, airlines and hotel groups a long way. And guarantees given for group companies, disclosed among contingent liabilities, are leverage that no balance-sheet ratio will show.