How to Calculate Debt Ratio of a Company

What is the definition of debt ratio in a company?

Choose the correct definition:
a. The ratio of total debts to total equity
b. The ratio of total assets to total debts
c. The ratio of total debts to total assets

Answer:

The correct definition of debt ratio in a company is: c. The ratio of total debts to total assets.

Debt ratio is a financial ratio that shows the proportion of a company's total debts to its total assets. It is used to measure a company's leverage or its ability to meet its financial obligations.

To calculate the debt ratio of a company, you can use the following formula:

Debt Ratio = Total Debts / Total Assets

By dividing the total debts of a company by its total assets, you will get the debt ratio percentage. This percentage indicates the extent to which a company is financed by debt.

A high debt ratio suggests that a company has more debt relative to its assets, which may indicate financial risk. On the other hand, a low debt ratio indicates that a company has a strong financial position with lower debt levels.