#total debt ratio
A company’s long-term debt to total assets ratio shows the percentage of its assets that are financed with long-term debt. The ratio reveals a company’s general financial position.
The calculation is simply long-term debt divided by total assets. Long-term debt is a company’s financial obligations that will last a year or longer.
For example, ABC Corporation has total assets, including cash, accounts receivable, inventory and other items, that total $1 million. Its long-term debts, including the leases on its facilities and its bond issues, total $400,000.
Its long-term debt to total assets ratio is 40%. In other words, for every 40 cents ABC owes in long-term debt, it has $1 in assets.
Lower ratios show a company is performing well and depending less on debt. A higher ratio means a company must maintain a high revenue stream to pay its expenses. Investors should be wary of companies with higher ratios, and management should find ways to either reduce debt or increase assets.
The acceptable long-term debt to total assets ratio varies between industries, and is best used for comparisons between similar firms. Most companies will calculate their ratio every year.
Total Debt to total assets, also called the debt ratio, is an accounting measurement that shows how much of a company’s assets are funded by borrowing. In business, borrowing is also called leverage.
The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component.
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