1. What Is The Debt Ratio?

The Debt Ratio is a financial metric that measures the proportion of a company's assets financed by debt as a percentage. It indicates the company's leverage and financial risk level.

2. How Does The Calculator Work?

The calculator uses the Debt Ratio formula:

Where:

• \( \text{Total Debt} \) — Sum of all company debts and liabilities ($)
• \( \text{Total Assets} \) — Sum of all company assets ($)

Explanation: The equation calculates what percentage of a company's assets are financed through debt rather than equity.

3. Importance Of Debt Ratio Calculation

Details: The Debt Ratio is crucial for assessing a company's financial health, solvency, and risk profile. It helps investors, creditors, and management understand the company's capital structure and ability to meet its financial obligations.

4. Using The Calculator

Tips: Enter total debt and total assets in dollars. Both values must be positive numbers, with total assets greater than zero for valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good debt ratio?
A: Generally, a debt ratio below 0.5 (50%) is considered good, indicating more assets than liabilities. However, optimal ratios vary by industry.

Q2: What does a debt ratio of 100% mean?
A: A 100% debt ratio means all assets are financed by debt, with no equity financing. This indicates very high financial risk.

Q3: How does debt ratio differ from debt-to-equity ratio?
A: Debt ratio compares total debt to total assets, while debt-to-equity ratio compares total debt to shareholders' equity.

Q4: Can debt ratio be greater than 100%?
A: Yes, if total debt exceeds total assets, the debt ratio will be greater than 100%, indicating negative net worth.

Q5: Why is debt ratio important for investors?
A: Investors use debt ratio to assess a company's financial risk, stability, and ability to withstand economic downturns.