What will be the Total Assets to Debt Ratio
The Total Assets to Debt Ratio is a financial metric that shows how much of a company's assets are financed by debt. It indicates the proportion of a company's assets that are funded by liabilities rather than equity.
Formula:
Total Assets to Debt Ratio=Total AssetsTotal Debt\text{Total Assets to Debt Ratio} = \frac{\text{Total Assets}}{\text{Total Debt}}Total Assets to Debt Ratio=Total DebtTotal Assets?
Where:
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Total Assets: The sum of all assets a company owns (both current and non-current).
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Total Debt: The sum of all liabilities (both short-term and long-term debts).
Example Calculation:
If a company has:
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Total Assets = $500,000
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Total Debt = $200,000
Total Assets to Debt Ratio=500,000200,000=2.5\text{Total Assets to Debt Ratio} = \frac{500,000}{200,000} = 2.5Total Assets to Debt Ratio=200,000500,000?=2.5
This means the company has 2.5 times more assets than debt.
Interpretation:
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Higher Ratio (> 1): Indicates the company has more assets than debt and is less leveraged.
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Lower Ratio (< 1): Suggests higher debt relative to assets, meaning the company is more leveraged and potentially at higher financial risk.
