Financial Statement Analysis

- Ratio Analysis of Financial Statements (Formula, Types, Excel)
- Ratio Analysis Advantages
- Ratio Analysis
- Liquidity Ratios
- Cash Ratio
- Cash Ratio Formula
- 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
- Changes in Net Working Capital
- Cash Flow from Operations Ratio
- Cash Reserve Ratio
- Operating Cycle Formula
- Current Ratio vs Quick Ratio
- Bid Ask Spread
- Liquidity vs Solvency
- Liquidity
- Solvency
- Solvency Ratios
- Equity Ratio
- Capital Adequacy Ratio
- Liquidity Risk
- Altman Z Score

- Turnover Ratios
- Inventory Turnover Ratio
- Accounts Receivable Turnover
- Accounts Receivables Turnover Ratio
- Accounts Payable Turnover Ratio
- Days Inventory Outstanding
- Days in Inventory
- Days Sales Outstanding
- Average Collection Period
- Days Payable Outstanding
- Cash Conversion Cycle
- Cash Conversion Cycle (CCC) Formula
- Fixed Asset Turnover Ratio Formula
- Debtor Days Formula
- Working Capital Turnover Ratio

- Profitability Ratios
- Profitability Ratios Formula
- Common Size Income Statement
- Vertical Analysis of Income Statement
- Profit Margin
- Gross Profit Margin Formula
- Gross Profit Percentage
- Operating Profit Margin Formula
- EBIT Margin Formula
- Operating Income Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Degree of Operating Leverage Formula (DOL)
- NOPAT Formula
- OIBDA
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Sales
- ROIC Formula (Return on Invested Capital)
- Return on Investment Formula (ROI)
- ROIC vs ROCE
- ROE vs ROA
- CFROI
- Cash on Cash Return
- 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
- Unit Contribution Margin
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- EBITDAR
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Variable Costing Formula
- Capitalization Rate
- Cap Rate Formula
- Comparative Income Statement
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula

- Efficiency Ratios
- Dividend Ratios
- Debt Ratios
- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Asset Ratio Formula
- Coverage Ratio
- Coverage Ratio Formula
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- DSCR Formula (Debt service coverage ratio)
- Financial Leverage Ratio
- Financial Leverage Formula
- Degree of Financial Leverage Formula
- Net Debt Formula
- Leverage Ratios
- Leverage Ratios Formula
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio
- Solvency Ratio Formula

**Debt to Asset Ratio Formula (Table of Contents)**

## What is Debt to Asset Ratio Formula?

The formula for debt to asset ratio indicates what proportion of a company’s assets are being financed with debt, rather than equity. The ratio basically helps in the assessment of the percentage of assets that are being funded by debt is-à-vis the percentage of assets that are being funded by the investors. The equation for debt to asset ratio is derived by dividing the aggregate of all short term and long term debts (total debts) by the aggregate of all current assets and non-current assets (total assets).

Mathematically, a formula of Debt to Asset Ratio is represented as,

**Debt to Total Asset ratio Formula = Total debts / Total assets**

### Explanation of the Debt to Total Asset Ratio Formula

The equation for the calculation of debt to asset ratio is fairly simple and can be derived by using the following steps:

**Step 1:** Firstly, the total debts of a company is computed by adding all the short term debts and long term debts that can be gathered from the liability side of the balance sheet.

**Total debts = Total short term debts + Total long term debts**

**Step 2:** Next, the total assets of the company can be computed by adding all the current assets and non-current assets that can be gathered from the asset side of the balance sheet.

4.8 (388 ratings)

**Total assets = Total current assets + Total non-current assets**

**Step 3:** Finally, the formula of debt to asset ratio can be derived by dividing the total debts (step 1) by the total assets (step 2).

### Examples of Debt to Asset Ratio Formula (with Excel Template)

Let’s see some simple to advanced examples of Debt to Asset Ratio Equation to understand it better.

#### Debt to Asset Total Ratio Formula – Example #1

**Let us take the example of a company called ABC Ltd which is an automotive repair shop in Brazil. The company has been sanctioned a loan to build out a new facility that is part of its current expansion plan. Currently, ABC Ltd has $80 million in non-current assets, $40 million in current assets, $35 million in short term debt, $15 million in long term debt and $70 million in stockholders’ equity. Calculate the debt to asset for ABC Ltd.**

As per the question,

**Total debts**

- Total debts = Short term debts + Long term debts
- = $35 million + $15 million
- = $50 million

**Total Assets**

- Total assets = Current assets + Non-current assets
- = $40 million + $80 million
- = $120 million

Therefore, the calculation of debt to total asset ratio formula is as follows –

- Debt to Total Asset Ratio Formula= $50 million / $120 million

**Ratio will be –**

- Debt to Asset = 0.4167

Therefore, it can be said that 41.67% of the total assets of ABC Ltd is being funded by debt.

#### Debt to Total Asset Ratio Formula – Example #2

**Let us take an example of Apple Inc. and do the calculation of debt to asset ratio in 2017 and 2018 based on the following information.**

From the above information, we will first calculate the following for the calculation of Debt to Asset Ratio Equation.

**Total Assets in 2017**

- Total assets in 2017 = Total current assets + Total non-current assets
- = $128,645 Mn + $246,674 Mn
- = $375,319 Mn

**Total Assets in 2018**

- Total assets in 2018 = $131,339 Mn +$234,386 Mn
- = $365,725 Mn

**Total Debts in 2017**

- Total debts in 2017 = Commercial paper + Term debt (current portion) + Term debt (non-current portion)
- = $11,977Mn + $6,496 Mn + $97,207 Mn
- = $115,680 Mn

**Total Debts in 2018 **

- Total debts in 2018 = $11,964 Mn + $8,784 Mn + $93,735 Mn
- = $114,483 Mn

By using the above-calculated values we will do the calculation of Debt to Asset for the Year 2017 and Year 2018.

**Calculation of Debt to Asset Ratio in 2017 **

- Ratio in 2017 = Total debts in 2017 / Total assets in 2017
- = $115,680 Mn / $375,319 Mn

**Ratio in 2017 will be –**

- = 0.308

**Ratio in 2018**

- Ratio in 2018 = $114,483Mn / $365,725 Mn

**Ratio in 2018** **will be – **

- = 0.313

### Relevance and Uses

It is important to understand the formula for calculation of the debt to asset ratio because it is commonly used by creditors to measure debt quantity in a company. Debt to asset ratio formula can also be used to assess the debt repayment ability of a company to check if the company is eligible for any additional loans. On the other hand, the ratio is being used by the investors to ensure that the company is solvent, will be able to meet its current and future obligations and has the potential to generate a healthy return on their investment.

Debt to total asset ratio formula is typically used by investors, analysts and creditors to assess the overall risk of a company. A company with a higher ratio indicates that the company is more leveraged and hence it is considered to be a risky investment and the banker might reject the loan request of such entity. Further, if the ratio of a company increases steadily, it could be indicative of the fact that a default is imminent at some point in the future.

The following inferences can be used as a guide to assess the financial health of a company:

- If the ratio is equal to one, then it means that all the assets of the company are funded by debt which indicates high leverage.
- If the ratio is greater than one, then it means that the company has more debt in its books than assets. It is indicative of extremely high leverage.
- If the ratio is less than one, then it means that the company has more assets than debts and as such has the potential to meet its obligations by liquidating its assets if required.

### Recommended Articles

This has been a guide to Debt to Asset Ratio Formula. Here we discuss how to calculate of Debt to Total Asset Ratio using practical example along with downloadable excel templates. You may learn more about Financial Analysis from the following articles –

## Leave a Reply