What is the Debt Ratio?
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The Debt Ratio is calculated as Total Liabilities divided by Total Assets. It measures the portion of a company's assets financed by creditors. The higher the ratio, the greater the financial leverage and risk. Companies with a debt ratio above 75% are generally considered highly leveraged; the industry average typically ranges from 57% to 67% according to the Risk Management Association.
Think about how much of a company's assets were paid for by borrowing. Divide total liabilities by total assets — the higher it is, the more leveraged and risky the company.