Quick Definition

Debt ratio is a financial metric that measures the proportion of a company's total liabilities to its total assets, indicating the extent of leverage and financial risk.

Formula

Examples

• 1A company with $500,000 in total liabilities and $1,000,000 in total assets has a debt ratio of 0.5, suggesting it uses debt to finance half of its asset base.
• 2An individual with $200,000 in total debt (mortgage, car loans, credit cards) and $400,000 in total assets (home, investments, savings) has a debt ratio of 0.5.
• 3A business considering expansion evaluates its debt ratio of 0.7 to determine if taking on additional debt is feasible without excessively increasing financial risk.

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