Definition of Debt Ratio


The debt ratio is a financial ratio that is used to measure the extent of the leverage of the company. It is defined as the ratio of total debts to total assets. It can also be stated as the proportion of assets, financed by the debt of a company. It is also known as debt to asset ratio.

Explanation of Debt Ratio

If this ratio is high, it reflects that company has high leverage, leads toward greater financial risk. The value of this ratio greater than 100% shows that company has more debt as compared to its assets. The value less than 100% shows that a company has more assets than debt. Besides other financial measures for the companies, the debt ratio can be an effective measure for investors for the determination of the risk associated with the company.

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