Exactly what level of debt is suitable for your business depends on your precise requirements at any one time.
There is a healthy level of debt, or ‘gearing’, that enables a business to grow and capture market share.
It’s not an exact science, however, and what’s regarded as healthy will also differ from industry to industry.
For example, capital-intensive industries such as manufacturing commonly have higher levels of debt than, say, a tech company that operates online.
The debt to equity ratio is a simple formula to show how capital has been raised to run a business.
It’s considered an important financial metric because it indicates (a) how financially stable a company is when facing problems with trading or other operational considerations and (b) what ability it has to raise additional capital for growth.
