How do you determine the target D/E ratio for a private company?

Three methods:

• Industry median: compute the D/E of 8–12 public comps and take the median. Liquid market prices give realistic market values.
• Optimal capital structure: the theoretical minimum WACC across different D/E levels (U-curve). Academic, too complex in practice.
• Management plan: for PE targets, often the post-LBO structure.

industrials 0.4–0.7, software/tech 0.1–0.3 (cash-rich), real estate 1.5–3.0 (asset-financed).

Family-owned businesses are often more conservative than public comps (D/E 0.2–0.3) — but the target should reflect the industry norm, not the family's conservatism.