How do you calculate the debt-to-asset ratio?

To calculate a debt to asset ratio, take all a company’s debts and liabilities and divide them by the company’s assets. The equation is: The size of the debt to asset ratio determines the risk of a company. The higher the ratio, the more risk the company has of defaulting or going bankrupt.

What are the risks associated with a high debt-to-assets ratio?

A high debt-to-assets ratio could mean that your company will have trouble borrowing more money, or that it may borrow money only at a higher interest rate than if the ratio were lower. Highly leveraged companies may be putting themselves at risk of insolvency or bankruptcy depending upon the type of company and industry.

What is the fundamental accounting equation for calculating the debt-to-asset ratio?

The debt to asset ratio formula is quite simple. It is simply the company’s total debt divided by its total assets or equity. This is technically the total debt ratio formula. Some analysts prefer to only observe the long-term ratio.

What are the benefits of understanding the debt-to-asset ratio?

When analyzing your risk of default on debts such as credits and loans, the debt-to-asset ratio can help you analyze the financial health of a business. You may use the debt-to-asset ratio to compare earlier ratios and the business's financial growth.