How Do You Calculate Company Debt Ratio?
Debt ratio is a comparison of a company’s debt to its assets. The ratio is used, along with other financial ratios, to determine the financial health of a company. If a company has a debt ratio of one, then it has an equal amount of debt to assets. If the debt ratio is greater than one, the company has more debt than assets. If the debt ratio less than one, the company has more assets than debt. Calculating a company’s debt ratio is simple–just divide the company’s total debt by its total assets. Find the company’s amount of debt–it should be on the balance sheet, under liabilities, on the company’s financial statements. Find the amount of the company’s assets on the balance sheet, under assets, on the company’s financial statements. Both current and noncurrent assets apply. Divide total debt by total assets to calculate debt ratio. Let’s say the company has $300,000 of debt and $500,000 of assets. In that case: 300000 / 500000 = 0.6 The company has a debt ratio of 0.6.
