Federal Reserve Bank of St. Consumer Financial Protection Bureau. Accessed Nov. Listed Companies. Arch Coal. Financial Ratios. Tools for Fundamental Analysis. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Financial Ratios Guide to Financial Ratios. Table of Contents Expand. What Is the Debt Ratio? What Does It Tell You? Special Considerations. Long-Term Debt to Asset Ratio. Debt Ratios FAQs. Key Takeaways A debt ratio measures the amount of leverage used by a company in terms of total debt to total assets.
This ratio varies widely across industries, such that capital-intensive businesses tend to have much higher debt ratios than others. A company's debt ratio can be calculated by dividing total debt by total assets.
A debt ratio of greater than 1. What Is a Good Debt Ratio? What Does a Debt-to-Equity Ratio of 1. Can a Debt Ratio Be Negative? Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. In other words, this shows how many assets the company must sell in order to pay off all of its liabilities.
This ratio measures the financial leverage of a company. Companies with higher levels of liabilities compared with assets are considered highly leveraged and more risky for lenders. The debt ratio is calculated by dividing total liabilities by total assets. Both of these numbers can easily be found the balance sheet. Here is the calculation:.
Make sure you use the total liabilities and the total assets in your calculation. The debt ratio shows the overall debt burden of the company—not just the current debt. The debt ratio is shown in decimal format because it calculates total liabilities as a percentage of total assets. BCD identified the following figures:. Based on the input described above, BCD has a debt ratio of 24 per cent.
A debt ratio of less than 40 per cent is considered healthy, meaning the company is doing well. A debt quotient of 24 per cent can even be considered a strong financial position. This includes everything of economic value which is expected to generate financial returns in the future. The total debt consists of all liabilities. It therefore includes all short-term and long-term debt. The short-term notes in the above example refer to any liability that has to be paid within a period of twelve months.
Debt ratio calculation: A simple calculation of the debt ratio will put the simplicity of this formula into perspective. Rick is a typical accountant. Every day he works at the office from 9 to 5. Rick makes his money through hours of study, analysis, and dedication. Accounting principles are useful to Rick both in his work life and in his personal life.
Rick is very good at comparing things like debt ratios and mortgages. He is planning to apply his knowledge to his own home financing. The debt ratio analysis he conducts is shown below:. Get Toolshero updates on new methods, models and theories! Join us. What do you think? Do you recognize the explanation about Debt Ratio Analysis, or do you have anything to add? In which scenarios do you think this analysis would be effective?
What do you believe are success factors that contribute to the practical application of this theory? How to cite this article: Sari, J. Debt Ratio Analysis.
0コメント