2) Fundamental Analysis
Ever heard stories of people who look rich but are drowning in debt? Companies can be like that too. DER (Debt to Equity Ratio) is how we check whether a company has too much debt or is still within safe limits.
DER (Debt to Equity Ratio) is a ratio comparing a company's total debt to its total equity (own capital). A DER of 1x means debt equals equity. A DER of 2x means debt is twice the equity. The higher the DER, the more dependent the company is on borrowed money.
DER is like the ratio between your mortgage and your down payment when buying a house. If you buy a $100,000 house with a $30,000 down payment (your equity) and a $70,000 mortgage (debt), your DER is 2.3x (70/30). If your income suddenly drops, that large mortgage becomes a heavy burden. Same with companies -- big debt = big risk when business slows down.
Banks naturally have high DER (can be 4-6x) because their business model uses customer deposits (counted as 'debt'). This is normal for banks. But for non-financial companies, DER above 1.5-2x deserves caution. ASII (Astra International), for example, typically maintains DER around 0.5-1x, showing conservative debt management.
After understanding this concept, apply it in tools so decisions become more objective and measurable.
Open Profit / Loss CalculatorWhat DER is safe?
For non-financial companies, DER below 1x is generally considered conservative and safe. DER of 1-2x is still reasonable depending on the industry. Above 2x needs more caution. But remember, banks and financial companies have very different DER standards.
If DER is high, does that mean the stock is bad?
Not necessarily. A company with high DER might have a highly profitable business that easily services its debt. What's dangerous is high DER + declining profits + negative cash flow. That combination can lead to bankruptcy.
