What is Debt Ratio and How Do
What is Debt Ratio
Debt Ratio is another financial ratio that indicates what proportion of debt has relative to assets. The ratio of total debt and total assets. Debt ratio use in wide
- For the company to measure leverage of the company that high debt give high risks.
- For the government to measure of how much the government has borrowed. The total amount of borrowing is called the national debt in glossary as a percentage of GDP.
- For Personal sometime measure to Bankruptcy
Formula of Debt Ratio
For example Company A
Total asses = 1 million
Total Debts(Longterm + Shortterm Liabilities) = $250,000
Debt Ratio = 250000/1000000 = 25%
What the Ratio Told
- > 1 most of the company’s assets are financed through debt. that highly leveraged or mean high risk
- *but need compare with industry
However, in Maximized shareholder wealth theory. Many CEO only concern dividend and profit they make over debt because High Debt will high return to shareholder.
For you beware your credit card because credit card interest is the most of rapid grow in the world.
Relate Information
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Tags: 1 Million, Asses, Assets, Bankruptcy, Ceo, Credit Card Interest, Debt Ratio, Debts, Dividend, Financial Ratio, Gdp, Glossary, High Risk, Leverage, Liabilities, National Debt, Proportion, Shareholder Wealth, Tobin, Z Score
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