What is the Debt to Asset Ratio?
Debt to Asset Ratio Calculator: The Debt to Asset Ratio measures a company's total debt against its total assets. It is a financial leverage ratio that shows the proportion of a company's assets financed through debt. A higher ratio indicates more leverage, which may be risky for businesses in uncertain times.
How to Calculate Debt to Asset Ratio?
The formula for the Debt to Asset Ratio is:
Debt to Asset Ratio = Total Debt / Total Assets
Where:
- Total Debt: Includes both short-term and long-term liabilities.
- Total Assets: Represents the total value of assets a company owns.
Debt to Asset Ratio Calculator
Enter your company's total debt and total assets to calculate the Debt to Asset Ratio:
Why is Debt to Asset Ratio Important?
The Debt to Asset Ratio helps investors and business owners:
- Evaluate financial health and stability.
- Understand the level of financial risk involved.
- Determine the company's reliance on borrowed funds.
Interpreting the Results
Generally:
- A ratio greater than 1 indicates the company has more debt than assets, which can be risky.
- A ratio below 0.5 is considered low risk, meaning the company is less reliant on debt.