Debt Ratio

A company will have to consider both risk and tax issues when deciding on an optimal debt ratio. When calculating this ratio, it is predictable to consider both current and non-current debt and assets. A ratio will indicates what ratio of debt a company has virtual to its assets. It is calculated by dividing total debts by total assets.

If a debt ratio is greater than one it is indicated as that a company has more debt than assets but if a debt ratio of less than one indicates that a company has more assets than debt. By combining this and with other measures of financial health, the debt ratio can help investors determine a company's level of risk.

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