How to Calculate Debt Ratio
What is Debt Ratio?
The debt ratio measures what proportion of a company's assets are financed by debt. Debt ratio = Total liabilities / Total assets. A ratio above 0.5 means more than half the assets are debt-financed.
Step-by-Step Guide
- 1Get total liabilities (all short-term and long-term debt)
- 2Get total assets from the balance sheet
- 3Debt ratio = Total liabilities / Total assets
- 4Debt-to-equity ratio = Total debt / Shareholders' equity (a related metric)
Worked Examples
Input
Liabilities £600k · Assets £1M
Result
Debt ratio = 0.6 (60%)
60 cents of debt per £1 of assets
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