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'''Debt Ratio''' is a [[financial ratio]] that indicates the percentage of a company's [[assets]] that are provided via [[debt]]. It is the ratio of [[total debt]] (the sum of [[current liabilities]] and [[long-term liabilities]]) and [[total assets]] (the sum of [[current assets]], [[fixed assets]], and other assets such as '[[Goodwill (accounting)|goodwill]]').

<math>\mbox{Debt ratio} = \frac {\mbox{Total Debt}} {\mbox{Total Assets}}</math>

or alternatively:

<math>\mbox{Debt ratio} = \frac {\mbox{Total Liability}} {\mbox{Total Assets}}</math>

For example, a company with $2 million in total assets and $500,000 in total liabilities would have a debt ratio of 25%. 

The higher the ratio, the greater risk will be associated with the firm's operation. In addition, high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will lower the firm's financial flexibility. Like all financial ratios, a company's debt ratio should be compared with their industry average or other competing firms. 

Total liabilities divided by total assets. The debt/asset ratio shows the proportion of a company's assets which are financed through debt

==References==
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{{DEFAULTSORT:Debt Ratio}}

[[Category:Financial ratios]]

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