This ratio measures a company's financial leverage. It is riskier to invest in a company with a higher debt/equity ratio, especially in times of rising interest rates, because of the additional interest that has to be paid out for the debt. The debt/equity ratio is equal to long-term debt divided by common shareholders' equity. If this ratio is greater than one, then the majority assets are financed through debt. If it is smaller than 1, then the majority of assets are financed through equity.