Debt Ratio

noun

A financial ratio that measures the percentage of a company’s assets that are financed through debt. This is calculated by taking the total amount of debt and dividing it by the total amount of assets of the company.

The debt ratio of a business is an indicator of how much risk the company has acquired. A good debt ratio will hover under 0.05, anything greater means the company has more liabilities than assets; which would make securing loans more difficult.

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