Financial Statement Analysis
 Ratio Analysis of Financial Statements (Formula, Types, Excel)
 Ratio Analysis Advantages
 Ratio Analysis
 Liquidity Ratios
 Cash Ratio
 Quick Ratio
 Quick Ratio Formula
 Current Ratio
 Current Ratio Formula
 Acid Test Ratio Formula
 Defensive Interval Ratio
 Working Capital Ratio
 Working Capital Formula
 Net Working Capital Formula
 Current Ratio vs Quick Ratio
 Bid Ask Spread
 Liquidity vs Solvency
 Liquidity
 Solvency
 Liquidity Risk
 Altman Z Score
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 Profit Margin
 Gross Profit Margin Formula
 Operating Profit Margin Formula
 Net Profit Margin Formula
 EBIDTA Margin
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 Earnings Per Share
 Basic EPS
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 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Capital Employed (ROCE)
 Return on Invested Capital (ROIC)
 ROIC vs ROCE
 CFROI
 Return on Total Assets (ROA)
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Revenue Per Employee Ratio
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 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Capitalization Rate
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 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Efficiency Ratios
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 Debt Ratios
 Debt to Equity Ratio
 Debt Coverage Ratio
 Debt Ratio
 Debt to Income Ratio Formula (DTI)
 Capital Gearing Ratio
 Capitalization Ratio
 Interest Coverage Ratio
 Times Interest Earned Ratio
 Debt Service Coverage Ratio (DSCR)
 Financial Leverage Ratio
 Net Debt Formula
 Leverage Ratios
 Operating Leverage vs Financial Leverage
 Current Yield
 Debt Yield Ratio
Debt Ratio Formula
It is one of the most used solvency ratios by investors. And it’s pretty easy to calculate too.
Let’s have a look at the formula of debt ratio –
All you need to do is to look at the balance sheet and find out whether a firm has enough total assets to pay off its total liabilities.
Explanation of Debt Ratio Formula
For an investor, the financial statements are everything. They look at all four financial statements and make their judgments. One of the most important financial statements is balance sheet. By looking at the balance sheet, the investors are able to know what’s working for a company and what needs to be improved.
Two of the most important items on the balance sheet are assets and liabilities. By looking at the total assets and the total liabilities, the investors are able to understand whether the firm has enough assets to pay off the liabilities. And that’s exactly what we call debt ratio.
By using this ratio, we calculate the proportion of the total assets and the total liabilities. And by looking at them, we get to know the stance of a company at any stage.
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Use of Debt Ratio Formula
This formula of debt ratio is useful for two groups of people.
 The first group is the top management of the company who is directly responsible for the expansion or contraction of a company. By using this ratio, the top management sees whether the company has enough resources to pay off its obligations.
 The second group is the investors who would like to see the position of a company before they ever put in their money into the company. That’s why the investors need to know whether the firm has enough assets to bear the expenses of debts and other obligations.
This ratio also measures the financial leverage of the company. And it also tells the investors how leveraged the firm is. If the firm has a higher level of liabilities compared to assets, then the firm has more financial leverage and vice versa.
Example of Debt Ratio Formula
Let’s take a practical example to illustrate this formula of debt ratio.
Boom Company has the following details –
 Current Assets – $30,000
 Noncurrent Assets – $300,000
 Current Liabilities – $40,000
 Noncurrent Liabilities – $70,000
Find out the debt ratio of Boom Company.
In the above example, we can see that we need to total the current and noncurrent assets and also current liabilities and noncurrent liabilities.
 The total assets are = (Current Assets + Noncurrent Assets) = ($30,000 + $300,000) = $330,000.
 The total liabilities are = (Current Liabilities + Noncurrent Liabilities) = ($40,000 + $70,000) = $110,000.
 Debt ratio formula is = Total Liabilities / Total Assets = $110,000 / $330,000 = 1/3 = 0.33.
 Ratio of Boom Company is 0.33.
To know whether this proportion between total liabilities and total assets is healthy or not, we need to see the similar companies under same industry. If the ratio of those companies is also in the similar range, it means Boom Company is doing quite well.
In normal situations, as lower as this ratio can be; better it is in terms of investment and solvency.
Debt Ratio Calculator
You can use the following Debt Ratio Calculator
Total Liabilities  
Total Assets  
Debt Ratio Formula =  
Debt Ratio Formula = 


Debt Ratio in Excel (with excel template)
Let us now do the same example above in Excel.
This is very simple. You need to provide the two inputs of Total Liabilities and Total Assets.
You can easily calculate the ratio by using the formula of debt ratio in the template provided.
You can download this Debt ratio template here – Debt Ratio Excel Template
Debt Ratio Video
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This has been a guide to Debt Ratio Formula, practical examples and debt ratio calculator along with excel templates. You may also have a look at these articles below to learn more about Financial Analysis –
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