Free Debt To Asset Ratio Calculator Online

The debt to asset ratio calculator is a tool to assess a company’s financial health by indicating the proportion of its assets financed through debt. It’s essentially a measure of how leveraged a company is.

Debt-to-asset ratio formula

=Total Debt / Total Assets

Where,

• Total Debt: Financial obligations that need to be repaid. It includes both current liabilities and long-term liabilities. This figure is on the company’s balance sheet under the “Liabilities” section.
• Total Assets: Everything a company owns that has economic value. It includes tangible assets like property, equipment, and inventory, as well as intangible assets like intellectual property and goodwill. The total assets figure can be found on the company’s balance sheet.

How To Calculate Debt To Asset Ratio?

Watch a video on how to calculate this ratio 👇

What is a good ratio?

There’s no single “good” debt-to-asset ratio that applies universally. It depends on several factors such as industry and company life stage. However, here’s a general guideline:

• A ratio below 1 (or 100%) generally indicates a company has more assets than debt, suggesting a more financially stable position.
• A ratio around 0.3 to 0.6 is where many investors feel comfortable, though this can vary depending on the company’s specific situation.
• A ratio above 2 might raise concerns about a company’s ability to manage its debt obligations, potentially indicating higher risk.

Infographic explaining what is a good debt-to-asset ratio, image by author

What are the limitations of this ratio?

• Asset Quality Blindness: It treats all assets equally, regardless of how easily they can be converted to cash (liquidity). A company with a large amount of inventory (illiquid) might have the same ratio as a company with a lot of cash (highly liquid) – but the second company is obviously in a better position.
• Debt Type Invisibility: The ratio doesn’t distinguish between different types of debt. Short-term, high-interest debt is riskier than long-term, low-interest debt. They both get lumped together in the calculation.
• Industry Benchmarks Needed: A high ratio in one industry might be normal, while a low ratio in another could be a sign of trouble. So it’s important to compare the ratio to industry benchmarks.
• Limited Future View: The ratio is a snapshot of a company’s financial health at a specific point. It doesn’t necessarily predict the future ability to repay debt.

Analysts use the debt-to-asset ratio alongside other metrics like liquidity and interest coverage ratios for a more complete financial picture. If one has too many debts, use a bankruptcy calculator to understand if bankruptcy might be a good option for you. Then seek professional advice on the best solutions for your situation.

Why measure debt to asset?

• Unlock company risk: Debt-to-asset ratio reveals how much debt a company finances its assets with. High ratio = potentially risky, low ratio = more stable.
• Spot smart growth: Young companies with decreasing debt-to-asset ratios might use debt strategically for growth.
• Assess your own finances: Calculate your debt-to-asset ratio to understand your financial leverage.
• Context is key: Ideal ratio varies by industry and company life stage.

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