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The debt ratio is defined as the ratio of total debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company’s assets that are financed by...
What is Debt Ratio? The debt ratio is a financial leverage ratio that measures the portion of company resources (pertaining to assets) that is funded by debt (pertaining to liabilities). A company with a high debt ratio is known as a “leveraged” firm. Debt Ratio Formula. The debt ratio can be computed using this formula:
Debt Ratio Formula. To find a business' debt ratio, divide the total debts of the business by the total assets of the business. Check out the debt ratio equation: A low debt ratio, typically less than 0.5 or 50%, indicates that a company relies more on equity than on borrowed funds to finance its assets.
Formula. The debt ratio formula used for calculation is: Debt Ratio= Total Debt / Total Assets. Interpretation. When the total debt is more than the total number of assets, it depicts that the company has more liabilities than assets.
Debt Ratio Formula. Debt Ratio = Total Debt / Total Assets. For example, if Company XYZ had $10 million of debt on its balance sheet and $15 million of assets, then Company XYZ's debt ratio is: Debt Ratio = $10,000,000 / $15,000,000 = 0.67 or 67%.
Debt ratio is a solvency ratio that measures a firm’s total liabilities as a percentage of its total assets. In a sense, the debt ratio shows a company’s ability to pay off its liabilities with its assets.
It's a simple equation: Debt Ratio = Total Debts / Total Assets. This formula shows you the proportion of a company's assets that are financed by debt. But what does that look like in practice? Let's use an example to illustrate.