A companyÂ’s total liabilities divided by stockholdersÂ’ equity. The ratio shows how indebted a company is. A higher proportion of debt compared to equity as a contributor to a firmÂ’s capital makes earnings more volatile and increases the likelihood that the company will not be able to meet its interest payments and may default. A company with a high debt-to-equity ratio can become a potential credit risk if the economy slows down or if competition increases.