Debt Ratio Calculator

The Debt Ratio is a financial ratio using which the extent of a company’s leverage is measured. The Debt Ratio measures the portion of the finances of the company that are already being funded through debt.

Debt Ratio Formula

Debt ratios calculator, and  asset to debt ratio calculator. The formula to calculate the debt ratio includes two main parts. They are as shown below:

Debt Ratio = Total Debt / Total Assets

Where, 

• total debt = all current, short-term, and long-term debt
• total assets = all assets, both tangible and intangible

Or

Debt Ratio = (Current Liabilities + Long-term Liabilities) ÷ (Current Assets + Long-term Assets)

What is Debt Equity Ratio and Times Interest Earned Ratio?

Debt Equity Ratio: The Debt Equity Ratio is used to analyze the financing of a company through debt. It measures the amount of a company’s finance through debt. The formula for calculating the Debt Equity Ratio is

Debt Equity Ratio = (Current Liabilities + long-term Liabilities) ÷ Equity

Times Interest Earned Ratio: The Times Interest Earned Ratio is used to measure the ability of a company to meet its debt obligations based on its current income. In general, it measures a company's ability to make interest payments. The formula for calculating a company's TIE ratio is

Times Interest Earned Ratio = (Net Income + Interest + Taxes) ÷ Taxes

Factors Considered While Debt Ratio Calculation

• Current Liabilities 

There are currently short-term liabilities that are due now or within a year. The current liabilities include general operating expenses, supplies, and materials, loans due within the same year, etc.

• Long Term Liabilities

Liabilities that are due in more than one year. Long-term liabilities, or non-current liabilities, are liabilities that are due beyond a year or the normal operation period of the company. The normal operation period is the amount of time it takes for a company to turn inventory into cash.

• Short Term Assets

Short-term assets that can be easily converted into cash, either immediately or within twelve months, to serve as a source of income, or to cover current expenses.

• Long-term Assets

Often referred to as fixed assets or "financial assets," this category includes real estate, equipment, fixtures, furniture, motor vehicles, etc. Long-term assets do not include any securities, regardless of risk factor, unlike current assets, where some very low-risk investments are considered cash equivalents when they are near maturity.

• Equity

Shareholders' equity is the difference between the funds contributed by the shareholders and the retained earnings or losses.

• Net Income

Net income refers to the amount an individual or business makes after deducting costs, allowances, and taxes. In short, Taxes and interest are deducted from gross income.

• Interest

In the case of loans, mortgages, and outstanding bonds, interest is paid.

• Taxes

An individual's combined tax liability for a given period, including their income, capital gains, property, sales, excise, and any specialty taxes they pay to their state or local governments.

How to Calculate Debt Ratio?

The calculation of the Debt Ratio is quite important to make sure that whether or not the business is facing financial risk.

Here are the steps to calculate the general Debt Ratio:

Step 1: Determination of Total Liabilities.

Total liabilities are the combination of both current and long-term liabilities. It can be calculated by taking the sum of debts and other financial obligations.

Step 2: Determination of Total Assets.

Total Assets are the total number of assets owned by a company. Assets hold a value and also have the potential to depreciate with time. 

Step 3: Calculating Debt Ratio.

After getting the values for both total liabilities and total assets, we can simply calculate the debt ratio by dividing the total debt by total assets.

Check out the given modules to know the relative proportion of debt to total assets. Also, learn about various math concepts related to ratios, precise calculations, and much more online for free with onlinecalculator.guide.

Example:

If a company has total assets of $100 million and total debt of $30 million, what will be the Debt Ratio?

Solution: 

So, if a company has total assets of $100 million and total debt of $30 million, its debt ratio can be calculated using the formula

Debt ratio=Total Assets / Total Debt.

Debt ratio = 100/30 = 0.3 or 30%

FAQs on Online Debt Ratio Calculator With Steps

1. How do you calculate the debt-to-equity ratio?

How to calculate debt of a company, Total debt ratio calculator OR  debt equity ratio calculator, The debt-to-equity (D/E) ratio is calculated by dividing a company's total liabilities by its shareholder equity. It is used to evaluate a company's financial leverage.

2. What does a debt ratio of 60% mean?

This ratio explains the proportion of a company that is financed by debt. A debt ratio of 60% means that the company is backed 60 percent by long-term and current portion debt.

3. What is the average American debt-to-income ratio?

The average American's debt payments were 8.69% of their income as calculated in the year 2020.

4. What is a bad debt-to-equity ratio?

Debt to equity ratio calculator, A poor debt-to-equity ratio is typically one above 2.0 and it depends on what kind of industry we are considering.