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Debt Ratio

Debt Ratio

A company’s debt ratio is the ratio of their debt load to their total assets.

A company with 10MUSD of debt and 20M USD of total assets has a debt ratio of 0.5 or 50%. All else equal, a company with a lower debt ratio is healthier than a company with a higher ratio. Comparisons of debt ratio are more useful between companies in the same industry. Companies with high debt ratios are risky investments - future revenue will be needed to service debt, lenders will be less likely to fund them and they are at a higher risk for bankruptcy.

Related Links

Investopedia's article on debt ratio

Wikipedia’s article on debt ratio