What Are Debt Ratios?
Debt ratios are leverage metrics that measure how much of a company's (or household's) financing comes from borrowed money. The two most common are the debt-to-asset ratio, which compares total debt to total assets, and the debt-to-equity ratio, which compares total debt to owners' equity. Together they tell lenders and investors how risky a balance sheet is: higher ratios mean more leverage and more financial risk.
How to Use This Calculator
Enter three figures from your balance sheet: Total Debt (all interest-bearing and non-interest liabilities you want to include), Total Assets, and Total Equity. The calculator instantly returns both ratios as a decimal and as a percentage. Note that, by the accounting identity, \(\text{Total Assets} = \text{Total Debt} + \text{Total Equity}\), so the three numbers usually tie out.
The Formula Explained
$$\text{Debt-to-Asset} = \dfrac{\text{Total Debt}}{\text{Total Assets}}$$ A value of 0.4 means 40% of assets are funded by debt. $$\text{Debt-to-Equity} = \dfrac{\text{Total Debt}}{\text{Total Equity}}$$ A value of 1.0 means the firm uses one dollar of debt for every dollar of equity. Lower numbers generally indicate a more conservative, lower-risk capital structure.
Worked Example
Suppose a company has Total Debt of $400,000, Total Assets of $1,000,000, and Total Equity of $600,000. $$\text{Debt-to-Asset} = \frac{400{,}000}{1{,}000{,}000} = 0.40 \ (40\%)$$ $$\text{Debt-to-Equity} = \frac{400{,}000}{600{,}000} \approx 0.667 \ (66.7\%)$$ The firm finances 40% of its assets with debt and carries about 67 cents of debt per dollar of equity — a moderate, healthy level for many industries.
FAQ
What is a good debt-to-equity ratio? It varies by industry, but a D/E below 1.0–2.0 is often considered manageable; capital-intensive sectors tolerate higher values.
Can the ratio be greater than 1? Yes. A debt-to-asset ratio above 1 means liabilities exceed assets (negative equity), a serious solvency warning sign.
Does this work for personal finances? Absolutely — use your total liabilities, total assets, and net worth (equity) to gauge your personal leverage.
