Debt Ratio Calculator
Calculate your debt ratio to assess financial leverage and the proportion of assets financed by debt.
All short-term and long-term debt obligations
Sum of all company assets
What is the debt ratio?
The debt ratio measures what percentage of a company's assets are financed by debt. Formula: (Total Debt / Total Assets) x 100. It shows financial leverage and risk. A debt ratio of 30% means 30% of assets are funded by debt and 70% by equity. Higher ratios indicate greater financial risk and dependency on borrowed money.
What is a good debt ratio?
Debt ratio under 30% is excellent - low risk, conservative financing. 30-50% is good - balanced leverage. 50-70% is fair but indicates high leverage and risk. Above 70% is concerning - majority of assets are debt-financed. Optimal ratio varies by industry: Capital-intensive (utilities, manufacturing) 40-60%, Technology/services 20-40%, Startups often higher initially.
What is included in total debt?
Total debt includes ALL debt obligations: Short-term debt (due within 1 year): Credit lines, accounts payable, current portion of long-term debt, accrued expenses. Long-term debt (due after 1 year): Bank loans, bonds, mortgages, leases. Include both current and non-current liabilities from the balance sheet. Exclude equity items like retained earnings or stock.
What is the difference between debt ratio and debt-to-equity ratio?
Debt Ratio = Total Debt / Total Assets (shows % of assets financed by debt). Debt-to-Equity Ratio = Total Debt / Total Equity (compares debt directly to equity). Example: $300K debt, $1M assets, $700K equity → Debt Ratio = 30%, D/E Ratio = 0.43 (or 43%). Debt ratio includes all assets; D/E focuses only on financing mix. Both measure leverage, different denominators.
How can I reduce my debt ratio?
Lower debt ratio by: 1) Pay down debt - use profits to reduce loans, prioritize high-interest debt. 2) Increase equity - retain earnings instead of distributing, seek equity investors, issue stock. 3) Increase assets without debt - reinvest profits, improve asset efficiency. 4) Restructure debt to equity - convert debt to equity with lenders. Focus on sustainable debt reduction to improve creditworthiness and reduce risk.
Is a low debt ratio always better?
Not necessarily. While low debt ratio (under 20%) means low risk, it can indicate: 1) Missed growth opportunities - debt can fund expansion, 2) Inefficient capital structure - some debt often cheaper than equity due to tax benefits, 3) Lower returns - leverage can amplify returns for shareholders. Optimal balance: Use enough debt to fund growth and maximize returns, but not so much that it creates financial distress. 30-50% is often ideal.