Measure how much of your asset base is financed by debt.
Debt ratio is a simple leverage indicator for households and businesses.
It shows dependence on debt financing relative to owned assets.
Higher ratios usually imply higher financial risk and lower flexibility.
Tracking this ratio over time improves risk management decisions.
Include short-term and long-term obligations.
Use realistic current asset values.
Divide debt by assets.
Compare current result against prior periods.
Plan debt payoff or asset growth actions.
Debt Ratio = Total Debt / Total Assets
The ratio measures proportion of assets financed through debt obligations.
Debt ratio = 320,000 / 500,000
Debt ratio is 0.64 (64%).
Debt ratio = 280,000 / 500,000
Ratio improves to 56%.
Debt ratio = 320,000 / 450,000
Leverage risk rises when asset values fall.