- 1 debt to asset ratio calculator
- 1.1 Debt to Assets Ratio Calculator:
- 1.2 Use our How to Use Debt to Assets Ratio Calculator:
- 1.3 Debt to Asset Ratio Calculator
- 1.4 About Debt to Asset Ratio Calculator
- 1.5 Debt to Asset Ratio Definition
- 1.6 Debt to Assets Ratio Calculator
- 1.7 Create a free account to access the embed code for the Basic version of this calculator!
- 1.8 Select additional packages to add to your calculator.
- 1.9 Definition - What is Debt to Asset Ratio?
- 1.10 Debt To Asset Ratio Calculator
debt to asset ratio calculator
Debt to Assets Ratio Calculator:
Debt to assets ratio is calculated by dividing total debts by total assets. This ratio tells analyst the portion of assets financed by debts and the portion of assets financed by equity. There should be a balance between both the sources. A ratio greater than 1 indicates that the majority of assets is financed through debt and a ratio less than 1 indicates that the majority of assets is financed through equity. If most of the assets have been paid off by external debts the company may have trouble in raising funds through loans from financial institutions. Moreover the company will have to pay more interest charges.
Use our free debt to assets ratio calculator to calculate debt to asset ratio of your company.
Use our How to Use Debt to Assets Ratio Calculator:
Enter in total debt.
Enter in total assets.
Press calculate button.
Wait for the result. Our free debt to assets ratio calculator will calculate debt to assets ratio for you.
Debt to Asset Ratio Calculator
About Debt to Asset Ratio Calculator
The online Debt to Asset Ratio Calculator is used to calculate the debt to asset ratio.
Debt to Asset Ratio Definition
Debt to asset ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt. It is calculated as the total liabilities divided by total assets, often expressed as a percentage. It is also called debt ratio.
The debt to asset ratio calculation formula is as following:
Debt to asset ratio = Total liabilities / Total assets
The debt to asset ratio is a leverage ratio that measures the amount of total assets that are financed by creditors instead of investors. In other words, it shows what percentage of assets is funded by borrowing compared with the percentage of resources that are funded by the investors.
Basically it illustrates how a company has grown and acquired its assets over time. Companies can generate investor interest to obtain capital, produce profits to acquire its own assets, or take on debt. Obviously, the first two are preferable in most cases.
This is an important measurement because it shows how leveraged the company by looking at how much of company’s resources are owned by the shareholders in the form of equity and creditors in the form of debt. Both investors and creditors use this figure to make decisions about the company.
Investors want to make sure the company is solvent, has enough cash to meet its current obligations, and successful enough to pay a return on their investment. Creditors, on the other hand, want to see how much debt the company already has because they are concerned with collateral and the ability to be repaid. If the company has already leveraged all of its assets and can barely meet its monthly payments as it is, the lender probably won’t extend any additional credit.
Now that you know what this measurement is, let’s take a look at how to calculate the debt to total assets ratio.
The debt to assets ratio formula is calculated by dividing total liabilities by total assets.
As you can see, this equation is quite simple. It calculates total debt as a percentage of total assets. There are different variations of this formula that only include certain assets or specific liabilities like the current ratio. This financial comparison, however, is a global measurement that is designed to measure the company as a whole.
Analysts, investors, and creditors use this measurement to evaluate the overall risk of a company. Companies with a higher figure are considered more risky to invest in and loan to because they are more leveraged. This means that a company with a higher measurement will have to pay out a greater percentage of its profits in principle and interest payments than a company of the same size with a lower ratio. Thus, lower is always better.
If debt to assets equals 1, it means the company has the same amount of liabilities as it has assets. This company is highly leveraged. A company with a DTA of greater than 1 means the company has more liabilities than assets. This company is extremely leveraged and highly risky to invest in or lend to. A company with a DTA of less than 1 shows that it has more assets than liabilities and could pay off its obligations by selling its assets if it needed to. This is the least risky of the three companies.
Let’s take a look at an example.
Ted’s Body Shop is an automotive repair shop in the Atlanta area. He is applying for a loan to build out a new facility that will accommodate more lifts. Currently, Ted has $100,000 of assets and $50,000 of liabilities. His DTA would be calculated like this:
As you can see, Ted’s DTA is .5 because he has twice as many assets as liabilities. Ted’s bank would take this into consideration during his loan application process.
Ted’s .5 DTA is helpful to see how leveraged he is, but it is somewhat worthless without something to compare it to. For instance, if his industry had an average DTA of 1.25, you would think Ted is doing a great job. The opposite is true if the industry standard was 10 percent. It’s always important to compare a calculation like this to other companies in the industry.
Debt to Assets Ratio Calculator
Debt to Assets Ratio Calculator
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Debt to Assets Ratio Definition
The Debt to Assets Ratio Calculator instantly calculates the debt to assets ratio of a company. Enter in the total amount of debt and the total amount of assets and then click the calculate button to calculate the debt to assets ratio.
When trying to interpret what the debt to assets ratio means it is best to keep in mind that if a company has a debt to asset ratio of more than 1 than they have the majority of their financing through debt rather than equity (and could potentially be considered a highly leveraged company) while a firm that has a debt to assets ratio of less than 1 has the majority of their financing through equity or some other means instead of debt. The Debt to Assets Ratio Calculator is very similar to the Debt to Equity Ratio Calculator.
How to Calculate Debt to Assets Ratio
Let's be honest - sometimes the best debt to assets ratio calculator is the one that is easy to use and doesn't require us to even know what the debt to assets ratio formula is in the first place! But if you want to know the exact formula for calculating debt to assets ratio then please check out the "Formula" box above.
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This is an advanced guide on how to calculate Debt to Asset (D/A) ratio with detailed analysis, interpretation, and example. You will learn how to use this ratio's formula to assess an organization's debt repayment capacity.
Definition - What is Debt to Asset Ratio?
The debt to asset ratio , also known as the debt ratio , is a financial calculation that allows you to evaluate a company’s leverage situation.
This is accomplished by measuring the percentage of a firm’s assets that are funded by creditors, rather than by investors.
When you want to examine a company as a potential investment, the debt to assets ratio offers a clear picture of just how much of that company’s resources are derived from borrowing money, and how much can be attributed to investor equity.
This is an important piece of information to understand, because you’ll want to feel confident that a business is capable of meeting its debt obligations, while still being in a position to offer a decent return on investment to its shareholders.
The more of a company’s assets that are funded by creditors, the higher the firm’s debt load becomes.
The more debt a business accumulates, the riskier an investment it represents, since it may eventually find itself in the unfortunate position of being unable to repay its loans.
Calculating this ratio is very simple. The exact debt asset ratio formula looks like this:
Debt to Assets Ratio = Total Liabilities / Total Assets
While there are a number of ratio variations that focus on different aspects of comparing a firm’s debts and assets, this universal version provides a good overall measurement of a company’s solvency.
Debt To Asset Ratio Calculator
Okay now let's take a look at the following example so you can understand clearly how to find debt to asset ratio in real life.
If you wanted to evaluate Company V as a potential investment, it would be helpful to have a better understanding of its leverage situation.
After examining Company V’s financial statements, you come up with the following figures:
- Total Assets = $2,000,000
- Total Liabilities = $1,000,000
By plugging these figures into the D/A formula, you end up with a result that looks like this:
In this example, Company V’s Total Debt to Total Asset ratio shows you that it has twice as many assets as it does liabilities, meaning that only half, or 50%, of its resources are derived from borrowed funds.
As an investor, the debt to assets ratio can help you to evaluate the overall risk associated with a specific company.
So what is a good debt to asset ratio?
Like many financial ratios, there are three possible outcomes for a company’s total debt to total asset ratio calculation: 1, or 100%, greater than 1, or less than 1.
When the ratio value is 1, it means a firm’s liabilities are equal to its assets. In other words, 100% of its resources are financed by debt, rather than by equity.
This result is obviously not ideal from a risk perspective.
The higher the total debt to total asset ratio, the more leveraged a company is, and the greater the chance it will fall short in meeting its debt obligations.
Generally speaking, you should look for organizations with D/A ratios of less than 1, since those firms will be devoting a smaller percentage of their profits to loan payments.
This situation provides a company with some financial breathing space, should interest rates suddenly increase, or business revenues temporarily decrease.
Because the debt to total asset ratio takes such a broad look at a company’s solvency, it can’t accommodate every possible financial scenario.
While it will provide you with some insight into how well a firm’s assets support its debt commitments, the total debt to total asset ratio treats all liabilities equally.
This is the case whether debts are short-term, long-term, necessary or unnecessary to the company’s overall level of operational efficiency.
You should bear in mind that it’s not always realistic to paint all business debt with the same brush.
Depending on the industry, a higher or lower debt to total assets ratio may be considered not only acceptable, but expected.