Debt Ratio Formula

Definition of Debt Ratio The debt ratio is also known as the debt to asset ratio or the total debt to total assets ratio.

Debt ratio formula. The debt ratio shown above is used in corporate finance and should not be confused with the debt to income ratio sometimes shortened to debt ratio used in consumer lending. LTD dfrac text Long-Term Debt Total. Total debt equals long-term debt and short-term debt.

Long-term debt is debt that are due in more than one year. However a high ratio is acceptable if a country is able to pay interest on its debt without having to refinance or adversely impact its economic growth. A ratio of 1 shows the financial insolvency of the company.

A company which has a total debt of 20 million out of 100 million total asset has a ratio of 02. The First step in calculating the net debt equation is to identify the short term debts these are those debts which are payable in 12 month period. Both of these numbers can easily be found the balance sheet.

Some of the examples of long-term debt include bonds and government treasuries. Debt to Equity Ratio Total Debt Shareholders Equity. Debt Ratio Formula Debt.

After you have the numbers for both total liabilities and total assets you can plug those values into the debt ratio formula which is total liabilities divided by total assets. The debt ratio is calculated by dividing total liabilities by total assets. Debt Ratio 15000000 20000000.

Debt Ratio Total Liabilities Total Assets. Net Debt Short-Term Debt Long-Term Debt Cash and Cash Equivalents. It is not equivalent to total liabilities because it excludes non-debt liabilities such as accounts payable salaries payable etc.