Debt Ratio

The debt ratio is a financial metric that measures the proportion of a company’s total debt to its total assets, reflecting the level of financial leverage. It is calculated by dividing total liabilities by total assets. A higher debt ratio indicates that a company relies more on borrowed funds to finance its operations, which may increase financial risk. Conversely, a lower debt ratio suggests that the company uses less debt relative to its assets.

Example

A company with $10 million in total liabilities and $50 million in total assets has a debt ratio of 0.2 (or 20%), indicating that 20% of its assets are financed through debt.