Debt to equity and leverage: how much debt is too much

Borrowing is normal for companies. A cement plant builds a new kiln with a bank loan, a trading company pays suppliers on credit, a telecom operator finances equipment over several years. Debt can raise the return for shareholders, but it also adds risk, because interest and repayments are due whatever happens to sales. This guide shows how to measure a company's debt from its balance sheet (Form 1), how to read the debt to equity ratio, and how to tell when leverage is working for or against shareholders.

The line codes below are those of the balance sheet and the report on financial results set by the Regulation on the deadlines, structure and content of financial statements, registration No. 3567, in force since 1 January 2025 (lex.uz, as of 26 September 2026). Figures on the forms are in thousands of soʻm.

Three ways to measure debt

1. Total liabilities to equity. The broadest measure divides everything the company owes by the owners' funds:

• Debt to equity = total liabilities (line 770) ÷ equity (line 480)

This includes bank loans, but also amounts owed to suppliers, advances received from customers, wages and taxes payable. It is simple and always available, which is why many data services use it.

2. Interest-bearing debt to equity. A narrower measure counts only borrowing that carries interest:

• Long-term bank loans (line 570) and long-term borrowings (line 580)
• Short-term bank loans (line 730) and short-term borrowings (line 740)
• The current part of long-term liabilities (line 750), when it relates to loans

Divide that total by equity. This is closer to what a lender or a credit analyst means by debt.

3. Net debt. Cash can repay debt, so some investors subtract it:

• Net debt = interest-bearing debt − cash (line 320) − short-term investments (line 370)

A company with large loans and even larger cash balances may have negative net debt, which means it could repay everything tomorrow.

A worked example

Take a hypothetical company with these year-end figures, in thousands of soʻm. The numbers are illustrative only.

• Equity (line 480): 130,000,000
• Total liabilities (line 770): 80,000,000
• Long-term bank loans (line 570): 25,000,000
• Short-term bank loans (line 730): 15,000,000
• Cash (line 320): 10,000,000

The three measures give:

1. Total liabilities to equity: 80,000,000 ÷ 130,000,000 = about 0.62, or 62% of equity.
2. Interest-bearing debt to equity: 40,000,000 ÷ 130,000,000 = about 0.31.
3. Net debt: 40,000,000 − 10,000,000 = 30,000,000, or about 0.23 of equity.

All three are correct. They answer different questions, so always note which one you are looking at before comparing two companies.

When leverage helps and when it hurts

Debt helps shareholders only when the business earns more on the borrowed money than the money costs. A simple illustration with round, hypothetical numbers shows why.

Two companies each have assets of 100 billion soʻm and earn an operating profit of 15 billion soʻm, a 15% return on assets.

• Company A has no debt. Its equity is 100 billion soʻm and, before tax, its return on equity is 15%.
• Company B has 50 billion soʻm of equity and 50 billion soʻm of loans at 10% interest. It pays 5 billion soʻm of interest, leaving 10 billion soʻm of profit before tax on 50 billion soʻm of equity: 20%.

Now suppose a weak year cuts operating profit to 4 billion soʻm for both.

• Company A earns 4% on equity.
• Company B still owes 5 billion soʻm of interest, so it makes a loss of 1 billion soʻm.

Leverage stretched the good year and turned the weak year into a loss. The higher the interest rate compared with the return on assets, the faster that happens. Our guide to ROE and ROA shows how to spot when a high ROE comes mainly from debt.

Signs to check beyond the ratio

• Interest cover. Divide profit from core activity (Form 2, line 100) by interest expense (line 180). A ratio of 5 means operating profit covers interest five times. A ratio close to 1 or below leaves little room for a bad year.
• Short-term pressure. Compare current assets (line 390) with current liabilities (line 600). A lot of short-term debt that must be refinanced within a year is riskier than the same amount due over several years.
• Overdue payables. Line 602 shows overdue current payables. A company that is late paying its own suppliers may be short of cash.
• Currency. Loans in foreign currency create exchange losses on Form 2 (line 200) when the soʻm weakens. The balance sheet does not show the currency of the loans, so read the notes and disclosures.
• New borrowing. Under the Law on the securities market, taking a loan that exceeds 50 percent of the charter fund, or of the sum of the value of the issuer's fixed and current assets, is an essential fact, and an issuer must disclose an essential fact within two working days (Article 39, lex.uz, as of 26 September 2026). These notices appear among the company's essential facts on openinfo.uz.

Banks are a different case

For a bank, deposits and other borrowing are the raw material of the business, so a bank's liabilities are normally many times its equity. A debt to equity ratio built for an industrial company tells you little about a bank. Banks are instead judged on regulatory capital and capital adequacy, and the Law on banks and banking activity requires them to disclose information about their own funds, compliance with capital requirements, liquidity and other key prudential ratios (Article 72, lex.uz, as of 26 September 2026). Compare banks with other banks, using the figures they disclose.

Where Finmind helps

The public stocks pages on Finmind include debt to equity in the reported history of each UZSE share with filings on record, for example Oʻzmetkombinat (UZMK). The key figure is shown as a multiple and the chart as a percentage of equity, for each fiscal year, with the basis stated as total liabilities ÷ total equity and the source named as openinfo.uz annual filings (NSBU Form 1 and Form 2). When equity is zero or negative, the page says the ratio has no meaningful base instead of printing a number. For the lines behind these figures, see our guide on how to read a balance sheet, and for interest expense and operating profit, the income statement guide.

This article is for education only and is not investment advice. Investing in securities involves risk, including the loss of money you invest.