Debt Ratio Calculator - Glossary:Debt Ratio: Debt ratio are used to compare debt (total liabilities) to its total assets. It shows proportion of a company's assets that financed by debt.
How to use this equation?This is a balance sheet component; the values are commonly stated against Total Liabilities and Total Assets. To use this ratio, divide the total liabilities by total assets.
Total Liabilities (Debt):
Total Liabilities is the source of the funds such as short term and long-term external borrowing that is mainly used to fund its asset purchase.
Total assets are the sum of all current and noncurrent assets that a company owns.
Debt ratio for a company with total liabilities of $300,000 and total assets of $500,000 is 0.6:1. It means that, 60% of its assets are financed by debt.