Work Smarter – Not Harder

Debt Ratio

The most important terms in time management

Back to Home page

What is Debt Ratio?

For investors, a debt ratio or debt to equity ratio indicates the overall financial strategy of a business. It measures company’s total liabilities as a percentage of its total assets. It is a good indicator of financial leverage of a company.

There’s no perfect number, but your current debt ratio is an easy way to make a quick check. The higher the ratio is the more risky a company is considered to be for investors or lenders.

What is the debt ratio formula?

The formula is determined by dividing total liabilities by total total assets. Both values can be found in balance sheet. The number is usually lower than one.


Your comapny’s liabilities is 1000 GBP Your company assets total 2000 GBP Dividing 1000 by 2000, your total debt ratio would be 0.5.

Quick Operations Check for Potential Investors

When investors look at a company, they use the current debt ratio. Buying a business with a high ratio means you’re taking on more debt and may face challenges.

The ratio below 1 shows that company’s assets are big enough to cover all it’s liabilities. So if a company would have to sell all it assets it would earn enough to cover all the debt and there would be something left. It also means that a company may have room to expand to reach a good debt ratio by using more debt and your assets to grow your current debt ratio.

If the ratio is bigger than 1, this means that a company is more risky to invest. It has more debt than assets.

But remember – What is debt ratio success for one company may be a high for another.

Finding the Best Debt Ratio for Your Own Business

If you’re running  your own company, analysing total debt ratio can help you stay in the “sweet spot.”

zistemo can help you to calculate all business performance indicators and help avoid going to risky from financial ratios perspective.

Accounting system Balance sheet Capital D Double Entry Bookkeeping

Related words


What is a retainer? Described simply, a retainer is an open-ended contract with a service provider. For this you pay an agreed fee and in return have access to their services when required.


Net Income Formula

What is Net Income? An important metric of effective management, workplace productivity and company growth, net income is the company’s total revenues earned, less any expenses such as production and operation costs for that period.



Invoice definition An invoice is an itemized “bill” of sale. It includes two parties: the issuer and the buyer. The issuer of the invoice is the “seller” of products or services.



What is an Expense? In the simplest terms, an expense is an outflow of money to another company or individual as payment for services rendered or an item acquired. In other terms, it is anything that leads to the reduced value of the owner.


zistemo: the productivity booster for your business

No credit card required. Cancel anytime.