What does the debt-to-equity ratio measure?

The debt-to-equity ratio is a financial metric that compares a company's total liabilities to its shareholder equity. This ratio provides an insight into the financial leverage of a company, illustrating how much debt is being used to finance the company's assets relative to the equity provided by shareholders. A higher ratio indicates that a company is more heavily financed by debt, which may imply higher risk, whereas a lower ratio suggests a more equity-based financing structure, which is generally viewed as less risky. This balance is crucial for investors when assessing the financial health and solvency of a company.

The other options do not accurately reflect the purpose or calculation of the debt-to-equity ratio. Understanding this metric is vital for anyone analyzing a company's financial stability and risk profile.