Connect With Us
Register
Login
Debt ratio definition
Debt ratio is a leverage measure that divides a company's total debt by its total assets, usually shown as a percentage. It captures how much of the asset base is funded by borrowing rather than by equity.
A higher debt ratio means more of the company's assets are paid for with debt, which raises financial risk if cash flow weakens or interest costs climb. A lower debt ratio points to a sturdier balance sheet and less reliance on borrowing. The reading only means something against a sector benchmark, because acceptable leverage varies by industry.
Debt ratio is one of several leverage gauges. The debt-to-equity ratio measures debt against shareholder equity rather than against total assets, so it answers a slightly different question about funding mix. The current ratio, by contrast, measures short-term liquidity, not long-run leverage. Debt ratio is the broad test of how much of the whole balance sheet rests on debt.
Debt ratio Example
A company has USD 400,000 of total debt and USD 1,000,000 of total assets. The debt ratio is:
USD 400,000 √∑ USD 1,000,000 √ó 100 = 40%
A debt ratio of 40% means 40% of the company's assets are financed by debt and the remaining 60% by equity.
Get Started!
Sign up and access the Global Markets in less than 3 minutes
The information provided on this website is of a general nature only and does not constitute personal financial advice. Before acting on any information on this website, you should consider the suitability of the information in relation to your objectives, financial situation and needs. Investing in CFDs and FX Margin Contracts carries significant risks and is not suitable for all investors. You may lose more than your initial deposit. You do not own, or have, any interest in the underlying asset. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. It is important that you read and consider the disclosure document before you acquire any product listed on the website. The information and advertisements offered on this website are not intended for use by any person in any country or jurisdiction where such use would be contrary to local laws and regulations. The Products and Services offered on this website are not intended for residents of the United States, Malaysia and Thailand.
TMGM is authorized and regulated in various jurisdictions.
Trademax Australia Limited, trading as TMGM, is regulated by the Australian Securities and Investments Commission (ASIC), AFSL no. 436416 and is located at Level 28, One International Tower, 100 Barangaroo Avenue, 2000 Sydney, NSW Australia.
Email: support@tmgm.com.au
Trademax Global Limited, trading as TMGM, is authorized and regulated by the Vanuatu Financial Services Commission (VFSC), registration number 40356 and registered at 1276, Kumul Highway, Port Vila, Vanuatu, Republic of Vanuatu.
Email: support@tmgm.com
Trademax Global Markets (SE) Limited, trading as TMGM, is authorized and regulated by the Financial Services Authority (FSA) of Seychelles, with license number SD224. The company is registered at Office No 13, Providence Estate ABIS Centre, Mahe, Seychelles.
Email: support@tmgm.com
Trademax Global Markets (International) Pty Ltd, trading as TMGM, is authorized and regulated by the Financial Services Commission, Mauritius (FSC) with license no. GB22201012, and registered at 33, Edith Cavell Street C/o IQ EQ Fund Services (Mauritius) Ltd Port Louis, 11324 Mauritius.
Email: support@tmgm.com
Copyright © TMGM. All rights reserved