Debt and leverage

Debt is money the company has borrowed and must pay back, with interest. Leverage is how much debt the company carries relative to its own capital.

Types you'll see on the balance sheet

Long-term borrowings - term loans from banks, debentures, bonds. Repaid over years.
Short-term borrowings - working capital loans, cash credit, commercial paper. Due within 12 months.
Lease liabilities - IND-AS 116 requires recognising operating leases on the balance sheet. Treat these like debt for leverage-ratio purposes.
Hidden debt - contingent liabilities, corporate guarantees to subsidiaries or related parties. Read the footnotes.

The two ratios that matter

Debt-to-Equity (D/E) = Total debt ÷ Shareholders' equity

A rough sector heuristic:

Software, FMCG, IT - D/E < 0.3 is normal
Auto, capital goods, manufacturing - 0.5–1.0 is normal
Cement, infrastructure, real estate - 1.0–2.0 is normal
Banks and NBFCs - much higher (8–10), measured differently

Debt and leverage

Debt is money the company has borrowed and must pay back, with interest. Leverage is how much debt the company carries relative to its own capital.

Types you'll see on the balance sheet

Long-term borrowings - term loans from banks, debentures, bonds. Repaid over years.
Short-term borrowings - working capital loans, cash credit, commercial paper. Due within 12 months.
Lease liabilities - IND-AS 116 requires recognising operating leases on the balance sheet. Treat these like debt for leverage-ratio purposes.
Hidden debt - contingent liabilities, corporate guarantees to subsidiaries or related parties. Read the footnotes.

The two ratios that matter

Debt-to-Equity (D/E) = Total debt ÷ Shareholders' equity

A rough sector heuristic:

Software, FMCG, IT - D/E < 0.3 is normal
Auto, capital goods, manufacturing - 0.5–1.0 is normal
Cement, infrastructure, real estate - 1.0–2.0 is normal
Banks and NBFCs - much higher (8–10), measured differently