Our Debt-to-Equity Ratio Calculator helps you evaluate a company’s financial leverage by comparing its total debt to total equity.

This key ratio is commonly used by investors to assess the risk associated with a company’s capital structure.

A lower ratio indicates a more financially stable company, while a higher ratio may suggest higher financial risk.

Debt-to-Equity Ratio Calculator

Debt-to-Equity Ratio Calculator

Enter the company's total debt in USD.
Enter the company's total equity in USD.

Understanding the Debt-to-Assets Ratio

The Debt-to-Assets Ratio is a fundamental measure of a company’s financial leverage. It provides insight into how much of a company’s assets are financed through debt, offering a clear picture of the company’s reliance on external financing.

Investors and analysts closely monitor this ratio because it directly correlates with financial risk.

Companies with higher Debt-to-Assets Ratios are generally considered riskier, as they are more dependent on debt to finance their operations and growth. Conversely, a lower ratio indicates a company that relies more on equity and internal funds to fuel its activities.

Step-by-Step Guide to Calculating Debt-to-Assets Ratio

Calculating the Debt-to-Assets Ratio is straightforward and follows a basic formula.

The formula compares a company’s total debt to its total assets:

\(\text{Debt-to-Assets Ratio} = \frac{\text{Total Debt}}{\text{Total Assets}} \times 100\)

In this equation:

  • Total Debt: This includes all short-term and long-term liabilities that a company owes.
  • Total Assets: This represents the sum of current and non-current assets, including cash, accounts receivable, inventory, property, equipment, and other investments.

Example

if a company has $600,000 in total debt and $1,500,000 in total assets, the calculation would look like this:

\(\text{Debt-to-Assets Ratio} = \frac{600,000}{1,500,000} \times 100 = 40\%\)

This means that 40% of the company’s assets are financed through debt. A lower percentage generally reflects a more financially stable company, whereas a higher percentage signals greater reliance on debt, increasing financial risk.

What is a Good Debt-to-Assets Ratio?

There is no one-size-fits-all answer to what constitutes a “good” Debt-to-Assets Ratio, as it varies by industry and the company’s stage of development. However, here are some general guidelines:

Debt-to-Assets Ratio Interpretation
Below 30% Low ratio: The company is conservative with its debt usage and relies heavily on equity.
30% to 60% Moderate ratio: Balanced approach, typical for many industries.
Above 60% High ratio: The company is heavily reliant on debt, which may signal higher financial risk.

Industry Standards

It’s also important to consider industry standards. For instance, capital-intensive sectors like manufacturing or utilities often have higher Debt-to-Assets Ratios, as these industries require large amounts of fixed assets and debt financing to maintain operations.

In contrast, service-based or tech companies, which rely more on intellectual property than physical assets, typically maintain lower ratios.

Ultimately, investors should consider the company’s specific circumstances and compare its Debt-to-Assets Ratio with its industry peers to get a clearer sense of its financial health and risk profile.

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