Debt Ratio

Online Calculators for Business & Investment

Debt Ratio

The Debt Ratio is one of the most common leverage ratios. The calculation determines the ratio of debts to assets. It is both a risk measure and a strategy indicator.

The Debt Ratio can be used as a risk measure as you can tell if there are enough assets available to be sold to meet all outstanding liabilities. If this motive is your aim, then ideally you would not want a Debt Ratio higher than 100% as this would indicate that all liabilities could not be paid off if all assets were sold at book value.

The Debt Ratio can be used as a strategy indicator because the calculation can indicate what proportion of assets are financed by debt. Ultimately, all business assets must be financed by debt, equity or retained earnings. Thus you can use the Debt Ratio to see if debt, or leverage, has been chosen by the business for its financing strategy.

The result is expressed as a percentage, and a result of 60%, for example, would mean there are 60 cents of liabilities for every dollar of assets on the balance, i.e. 60% liabilities to 100% of assets.

Debt Ratio Calculator

Specifically, the calculator asks for:
Liabilities, which is found on the balance sheet.
Assets, which is also found on the balance sheet.

Liabilities ($):

Assets ($):

Debt Ratio (%):

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