1. What is Debt Ratio?

The Debt Ratio is a financial ratio that measures the extent of a company's or individual's leverage. It shows what proportion of assets is financed by debt. A lower ratio indicates less reliance on debt for asset financing.

2. How Does the Calculator Work?

The calculator uses the Debt Ratio formula:

Where:

• Total Debt — The sum of all outstanding debts and liabilities
• Total Assets — The sum of all current and non-current assets

Explanation: The ratio expresses the percentage of assets that are being financed by creditors. A ratio of 100% means all assets are financed by debt.

3. Importance of Debt Ratio

Details: The debt ratio is crucial for assessing financial health. Creditors use it to evaluate lending risk, while investors use it to understand a company's capital structure.

4. Using the Calculator

Tips: Enter total debt and total assets in the same currency. Both values must be positive numbers, with total assets greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good debt ratio?
A: Generally, a ratio below 0.5 (50%) is considered good, indicating more assets than debt. However, ideal ratios vary by industry.

Q2: How is debt ratio different from debt-to-equity ratio?
A: Debt ratio compares total debt to total assets, while debt-to-equity compares debt to shareholders' equity.

Q3: Can debt ratio be more than 100%?
A: Yes, if total liabilities exceed total assets, indicating negative net worth.

Q4: Should individuals calculate their debt ratio?
A: Yes, personal debt ratio helps assess financial health and borrowing capacity.

Q5: How often should debt ratio be calculated?
A: For businesses, quarterly with financial statements. For individuals, annually or when major financial changes occur.