Debt ratio

The debt ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt. It is the ratio of total debt and total assets, which is also equal to the ratio of total liabilities and total assets:

Debt ratio = .mw-parser-output .sfrac{white-space:nowrap}.mw-parser-output .sfrac.tion,.mw-parser-output .sfrac .tion{display:inline-block;vertical-align:-0.5em;font-size:85%;text-align:center}.mw-parser-output .sfrac .num{display:block;line-height:1em;margin:0.0em 0.1em;border-bottom:1px solid}.mw-parser-output .sfrac .den{display:block;line-height:1em;margin:0.1em 0.1em}.mw-parser-output .sr-only{border:0;clip:rect(0,0,0,0);clip-path:polygon(0px 0px,0px 0px,0px 0px);height:1px;margin:-1px;overflow:hidden;padding:0;position:absolute;width:1px}⁠Total Debts/Total Assets⁠ = ⁠Total Liabilities/Total Assets⁠

Financial analysts and financial managers will use the ratio in assessing the financial position of the firm. Companies with high debt to asset ratios are said to be highly leveraged, and are associated with greater risk. A high debt to asset ratio may also indicate a low borrowing capacity, which in turn will limit the firm's financial flexibility.

References

Corporate Finance: European Edition, by D. Hillier, S. Ross, R. Westerfield, J. Jaffe, and B. Jordan. McGraw-Hill, 1st Edition, 2010.

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See also

References