Which financial ratio primarily assesses a company's leverage or debt level?

The debt-to-equity ratio primarily assesses a company's leverage or debt level. The debt-to-equity ratio compares a company's total liabilities (debt) to its shareholders' equity. It indicates the proportion of a company's financing that comes from debt versus equity. A higher debt-to-equity ratio suggests that a company relies more heavily on debt financing, which can increase financial risk. For example, a debt-to-equity ratio of 2:1 means that for every dollar of equity, the company has two dollars of debt. This might indicate a higher level of financial risk compared to a company with a debt-to-equity ratio of 0.5:1. While other financial ratios, such as the debt-to-asset ratio and the times interest earned ratio, also provide insights into a company's debt levels, the debt-to-equity ratio is the most commonly used and direct measure of leverage. Investors and analysts use this ratio to assess a company's financial risk and its ability to meet its debt obligations. A very high ratio could indicate that the company is over-leveraged and may have difficulty repaying its debts, while a very low ratio might suggest that the company is not taking advantage of potential growth opportunities through borrowing.