Debt to Equity Ratio by Industry (2026)

Last Updated: December 2025

Raising capital is an inevitable step in growing your business to its next level. This is because as a company starts scaling, the need for funding also grows because there are employees to be paid and operational activities to be updated. It is also important to understand how to balance these costs on your company’s financial documents. And that requires you to be aware of certain financial terms, how they work and their formulas. One such crucial term is the Debt to equity ratio. It reveals the financial condition of your company and is a significant tool that investors use to gauge business performance. 

This article will help you understand the different types of debt in debt to equity ratio, how to calculate it using the debt to equity ratio formula and its analysis by industry.

Debt to Equity Ratio

A company’s financial statement should reveal the funds or capital borrowed from a financial institution called the debt. Also, the number of stocks or shares offered to investors denoting ownership allowance will also be mentioned in the sheet, which is called equity. Understanding the relationship between the two is key to maintaining the financial health of the organization. 

What is Debt to Equity Ratio?

Debt to equity ratio is a value that helps businesses determine how much of the company’s debt and equity is used to finance its operations. The company’s balance sheet will reveal the value of liabilities and equity assets in it. These two values are used to calculate the D/E ratio. These ratios vary with respect to the industry as the debt requirement is not uniform across these businesses. It is estimated that the collective ratio of the US amounts to 83.3% in Q2 of 2022, according to a Statista report. It is an indication of a healthy debt-to-equity ratio balance.

The higher the value of the Debt to equity ratio of a company, the investment risk is higher. It shows that the company is highly dependent on debt financing for its operations. It may look like the income generated is increasing in a debt-financed company. However, when the debt financing value overtakes the income, the value of shares is likely to come down. Depending on the market conditions, the revenue records may seem unprofitable over time. So it is important to understand the impact of debt financing with respect to current market conditions when securing funds.

Debt to Equity Ratio – Types of Debt

The types of debt in debt to equity ratio may vary according to industries, capital requirements and company potential. Some of the most common types of debt are listed below.

• Short-term Liabilities – The funds borrowed from a lender, bank or any financial institution for a short period are called short-term Liabilities. The stipulated time to repay is usually less.
• Long-term Liabilities – These debts are borrowed to serve a longer period. When companies borrow funds to support construction or manufacturing, it is usually long-term.
• Accounts Payable – When companies use their credits to purchase goods and services from their suppliers and repay them within a year or a stipulated payment cycle, an AP is claimed. 
• Accrued expenses – Some company expenses are incurred without an invoice or record but are marked on the balance sheet. They will also have a 12-month cycle to repay the amount.

Pros and Cons of High Debt to Equity Ratio

If the D/E ratio is high, it means that the business borrows funds from external resources to fund its operations. It is an indication to the investors that the company’s debts are already higher than their returns. But it is also important to compare the current ratio with the previous financial years. An increase in the debt to equity ratio may also mean the company is receiving intensive funds to improve its operation in the future. Here are a few pros and cons of debt to income ratio when the value is high.

Pros of High Debt to Equity Ratio

• When a D/E ratio value is high, it means the firm has the capacity to solve its debt commitments through its returns
• A high debt to equity ratio can bring down the company’s WACC ( Weighted Average Cost of Capital). It is the capital that the company has to pay to fund its assets.
• Having many sources to finance can help a company potentially increase its ROE (Return On Equity).

Cons of High Debt to Equity Ratio

• High debt to equity ratio can make the company have a hard time repaying the debts, in cases of losses or failure.
• The D/E ratio is linked to the equity cost. When the former increases, the latter also grows in value. When the cost of equity rises, the WACC value may suddenly increase thus bringing down the value of the share price.
• When the D/E value of a company is high it can make investors hesitate to commit to financial relationships with the company in the future.

Debt to Equity Ratio Formula

To calculate the D/E ratio, you must know the values of two elements – total liabilities and shareholders’ equity. The former is the collective value of the company’s debt and the latter is mentioned in the balance sheet. The following debt to equity ratio formula is used to calculate the value. 

In other cases, if you want to understand the company’s ability to repay short-term debts, you can find the cash ratio by using the following formula,

This can also be understood by using a similar formula,

These short-term liabilities are nothing but the payable amounts borrowed for a short while like employee wages and suppliers’ costs. They are also considered less risky.

Debt to Equity Ratio Calculation

After you apply the above formulas to determine the debt to equity ratio value, you need to understand if the outcome is positive or negative. A positive D/E ratio is when the utmost value of the ratio does not exceed 1 or 1.5. For industries that require bigger capital, the average ratio value can be 2 or 2.5. This scenario indicates that the company does not depend on funds to support its operations.

On the other hand, when the value exceeds 2.5, it is considered negative. This value can make investors, analysts, and lenders hesitate to support the business because of the indication of financial instability. This can happen because of taking more debts to compensate for previous losses or offering larger dividends beyond the equity of shareholders. 

Debt to Equity Ratio Example

Let’s assume Company XYZ Inc., wants to evaluate their debt to equity ratio because they need more funding from investors. The investors shall offer their interest to invest only if the company demonstrates a positive D/E ratio value. Their total liabilities amount to $500,000 and the equity of shareholders remains $400,000. Therefore the debt to equity ratio would be calculated as,

500,000 / 350,000 = 1.4

Here, the D/E ratio is 1.4. This means the lenders can offer financial assistance without fearing an impending risk. The company is experiencing positive growth so far. 

On the other hand, there could be companies with $950,000 in debt with an equity value of $150,000. Such firms will have a D/E ratio value of 6 and this indicates a risk for the investors and means the company is heavily funded by external sources.

Debt to Equity Ratio by Industry

Sector	Industry Name	Updated Debt To Equity Ratio for US - Dec 2025
Communication Services		0.8702
	Advertising	1.263
	Alternative Carriers	2.792
	Broadcasting	0.9578
	Cable & Satellite	1.835
	Integrated Telecommunication Services	1.46
	Interactive Home Entertainment	0.1333
	Interactive Media & Services	0.2224
	Movies & Entertainment	0.6831
	Publishing	0.3873
	Wireless Telecommunication Services	1.411
Consumer Discretionary		0.8323
	Apparel Retail	0.6938
	Apparel, Accessories & Luxury Goods	0.93
	Automobile Manufacturers	0.7791
	Automotive Parts & Equipment	0.361
	Automotive Retail	2.373
	Broadline Retail	0.4319
	Casinos & Gaming	3.221
	Computer & Electronics Retail	0.6973
	Consumer Electronics	0.2694
	Distributors	0.7637
	Education Services	0.3607
	Footwear	0.655
	Home Furnishings	0.7808
	Home Improvement Retail	9.194
	Homebuilding	0.425
	Homefurnishing Retail	1.628
	Hotels, Resorts & Cruise Lines	2.57
	Household Appliances	0.638
	Housewares & Specialties	1.524
	Leisure Facilities	2.194
	Leisure Products	0.5559
	Motorcycle Manufacturers	0.7048
	Other Specialty Retail	1.363
	Restaurants	3.5
	Specialized Consumer Services	2.554
	Textiles	0.6036
	Tires & Rubber	0.5218
Consumer Staples		0.8808
	Agricultural Products & Services	0.4864
	Brewers	0.3765
	Consumer Staples Merchandise Retail	0.7932
	Distillers & Vintners	0.7834
	Drug Retail	0.1894
	Food Distributors	2.194
	Food Retail	1.287
	Household Products	0.6912
	Packaged Foods & Meats	0.783
	Personal Care Products	0.6941
	Soft Drinks & Non-alcoholic Beverages	0.9932
	Tobacco	2.74
Energy		0.5676
	Coal & Consumable Fuels	0.1742
	Integrated Oil & Gas	0.4079
	Oil & Gas Drilling	0.5986
	Oil & Gas Equipment & Services	0.4522
	Oil & Gas Exploration & Production	0.4259
	Oil & Gas Refining & Marketing	0.6143
	Oil & Gas Storage & Transportation	1.672
Financials		2.027
	Asset Management & Custody Banks	1.346
	Commercial & Residential Mortgage Finance	34.8
	Consumer Finance	1.402
	Diversified Banks	1.82
	Diversified Capital Markets	2.959
	Diversified Financial Services	0.822
	Financial Exchanges & Data	0.4682
	Insurance Brokers	1.028
	Investment Banking & Brokerage	2.051
	Life & Health Insurance	0.4733
	Mortgage REITs	2.672
	Multi-line Insurance	0.2703
	Multi-Sector Holdings	0.1723
	Property & Casualty Insurance	0.2444
	Regional Banks	0.636
	Reinsurance	0.301
	Specialized Finance	3.328
	Transaction & Payment Processing Services	0.9045
Health Care		0.7482
	Biotechnology	0.8122
	Health Care Distributors	1.155
	Health Care Equipment	0.5043
	Health Care Facilities	3.599
	Health Care Services	0.9406
	Health Care Supplies	0.4574
	Health Care Technology	0.4807
	Life Sciences Tools & Services	0.5721
	Managed Health Care	0.7777
	Pharmaceuticals	0.7318
Industrials		0.855
	Aerospace & Defense	1.086
	Agricultural & Farm Machinery	1.512
	Air Freight & Logistics	0.9912
	Airport Services	1.068
	Building Products	0.6259
	Cargo Ground Transportation	0.6306
	Commercial Printing	0.4005
	Construction & Engineering	0.8255
	Construction Machinery & Heavy Transportation Equipment	0.7421
	Data Processing & Outsourced Services	0.9542
	Diversified Support Services	0.7865
	Electrical Components & Equipment	0.5732
	Environmental & Facilities Services	1.231
	Heavy Electrical Equipment	0.3109
	Highways & Railtracks	1.036
	Human Resource & Employment Services	0.4957
	Industrial Conglomerates	1.092
	Industrial Machinery & Supplies & Components	0.3892
	Marine Ports & Services	0.5247
	Marine Transportation	0.4447
	Office Services & Supplies	0.6199
	Passenger Airlines	2.184
	Passenger Ground Transportation	1.355
	Rail Transportation	1.14
	Research & Consulting Services	0.8373
	Security & Alarm Services	0.7286
	Trading Companies & Distributors	0.8386
Information Technology		0.4153
	Application Software	0.3328
	Communications Equipment	0.588
	Electronic Components	0.3748
	Electronic Equipment & Instruments	0.231
	Electronic Manufacturing Services	0.3278
	Internet Services & Infrastructure	0.9654
	IT Consulting & Other Services	0.6304
	Semiconductor Materials & Equipment	0.3229
	Semiconductors	0.3406
	Systems Software	0.5655
	Technology Distributors	0.5188
	Technology Hardware, Storage & Peripherals	0.4094
Materials		0.5286
	Aluminum	0.5503
	Commodity Chemicals	0.8117
	Construction Materials	0.6737
	Copper	0.4071
	Diversified Chemicals	0.7059
	Diversified Metals & Mining	0.3303
	Fertilizers & Agricultural Chemicals	0.3805
	Forest Products	0.1882
	Gold	0.2228
	Industrial Gases	0.7138
	Metal, Glass & Plastic Containers	1.046
	Paper & Plastic Packaging Products & Materials	1.035
	Paper Products	0.7384
	Precious Metals & Minerals	0.4632
	Silver	0.117
	Specialty Chemicals	0.5358
	Steel	0.4105
Real Estate		1.14
	Data Center REITs	1.085
	Diversified Real Estate Activities	1.196
	Diversified REITs	0.9373
	Health Care REITs	0.8248
	Hotel & Resort REITs	1.46
	Industrial REITs	0.6869
	Multi-Family Residential REITs	0.9152
	Office REITs	1.486
	Other Specialized REITs	1.524
	Real Estate Development	1.261
	Real Estate Operating Companies	1.279
	Real Estate Services	0.5087
	Retail REITs	1.144
	Self-Storage REITs	1.126
	Single-Family Residential REITs	0.8143
	Telecom Tower REITs	-34.92
	Timber REITs	0.5568
Utilities		1.597
	Electric Utilities	1.582
	Gas Utilities	1.056
	Independent Power Producers & Energy Traders	1.461
	Multi-Utilities	1.762
	Renewable Electricity	2.672
	Water Utilities	1.042

Data Source: ycharts.com, data for the United States on December 12, 2025

What Is a Good Debt to Equity Ratio?

Understanding these constraints will help investors make more informed financial decisions.

• Industry-specific applications: The ideal D/E ratio varies across industries, potentially misleading cross-industry comparisons.
• Size matters: While a D/E ratio of 1 or less is considered ideal, larger companies with high capital requirements naturally maintain higher ratios, with values above 2 often regarded as acceptable.
• Inconsistent debt definitions: The calculation may include financial instruments that aren’t true debts, such as preferred shares, which can artificially inflate the D/E ratio.
• Limited context: Despite helping companies understand their financial stability position, D/E ratios provide an incomplete picture when viewed in isolation.

Always consider these Debt-to-Equity Ratio limitations alongside other financial metrics to develop a comprehensive understanding of a company’s true financial health.

Industry Debt-to-Equity Ratio Benchmarks

The table below provides benchmark debt-to-equity (D/E) ratio ranges across major industries:

Industry	Min	Max	Industry D/E Ratio Range	Interpretation of Industry
Communication Services	0.1333	2.792	0.1333 - 2.792	This sector exhibits a wide range with Interactive Home Entertainment at a low 0.1333 due to asset-light models, and Alternative Carriers a high 2.792 due to heavy investment in infrastructure. Other subsectors like Broadcasting, Cable and Wireless are in the middle with recurring revenues to support moderate leverage.
Consumer Discretionary	0.2694	9.194	0.2694 - 9.194	A highly variable sector, it ranges from Consumer Electronics at 0.2694 to Home Improvement Retail at 9.194, an outlier due to the high capital and expansion need. Restaurants, Hotels and Gaming are further along in terms of Leverage and Apparel and Footwear is moderate.
Consumer Staples	0.1894	2.74	0.1894 - 2.74	A stable sector and predictable demand, leverage ranges from Drug Retail with 0.1894 to Tobacco with 2.74. Most subsectors: Food, Household Products, Soft Drinks cluster in the moderate range. Usually companies have manageable debt with steady cash flows.
Energy	0.1742	1.672	0.1742 - 1.672	Energy firms exhibit moderate levels of leverage, which starts with Coal & Consumable Fuels at 0.1742 and ends at Oil & Gas Storage & Transportation at 1.672 as a result of infrastructure-heavy operations. Other subsectors such as Exploration, Refining and Services are also at the mid-range. The capital intensive nature of the industry causes high borrowing needs in comparison to most sectors.
Financials	0.1723	34.8	0.1723 - 34.8	The widest range of all the sectors, from Multi-Sector Holdings at 0.1723 to Commercial & Residential Mortgage Finance at 34.8 where borrowing is fundamental to the business model. Banks, capital markets and insurance companies are mostly moderately leveraged.
Health Care	0.4574	3.599	0.4574 - 3.599	Health Care ranges from Supplies, which is 0.4574, to Facilities, which is 3.599. This indicates the large capital requirements of hospitals and treatment centres. Biotechnology, Distributors, and Services are around mid-level leverage.
Industrials	0.3109	2.184	0.3109 - 2.184	Industrials range from Heavy Electrical Equipment at 0.3109 to Passenger Airlines at 2.184, driven by aircraft financing and fuel volatility. Most subsectors: Engineering, Machinery, Logistics fall in moderate levels. The combination of manufacturing and transportation results in a balanced but diverse structure of debt.
Information Technology	0.231	0.9654	0.231 - 0.9654	IT has the lowest leverage throughout, beginning at 0.231 in Electronic Equipment & Instruments and highest at 0.9654 in Internet Services & Infrastructure where data centers are high capital intensive. Most subsectors remain well below 0.6 and thus have good equity financing and high margins.
Materials	0.117	1.046	0.117 - 1.046	Materials have moderate leverage from Silver Mining at 0.117 to Metal, Glass & Plastic Containers at 1.046. Chemicals, Steel, Gases and Packaging are in the mid-range. The use of debt in materials reflects a combination of commodity cycles and manufacturing needs.
Real Estate	-34.92	1.524	-34.92 - 1.524	Real Estate has a range from 0.5087 (Real Estate Services) to 1.524 (Other Specialized REITs), not counting for the anomalous value of Telecom Tower REITs. Most REITs: Retail, Industrial, Residential use debt to purchase and develop properties. Leverage is structurally better because of asset-backed financing.
Utilities	1.042	2.672	1.042 - 2.672	Utilities are always high in terms of leverage, starting with water utilities at 1.042, and going as high as 2.672 in Renewable Electricity, where the cash outlay at the front end is significant. Electric, Gas, Multi-Utilities have strong but stable debt levels held up by predictable, regulated revenue streams.

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