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 Income Ratio Formula (Table of Contents)
DTI or Debt to Income Ratio Formula
Before an investor decides to loan a certain amount to a firm, the investor needs to know that the firm is earning enough monthly to pay off his lending amount. This can be true for an individual borrower as well.
Let’s have a look at the formula of debt to income ratio –
DTI / Debt to Income Ratio Formula
Let’s take an example to illustrate the debt to income ratio (DTI) formula.
David has applied for a credit card. He finds out that credit card would very useful for him for smaller purchases. The credit card company asks David for proof of his monthly income. The credit card company finds that David earns around $10,000 per month. After a few days, the credit card company informs David that he is eligible for the credit card.
From this example, we can interpret that David is eligible for the credit card because the expected monthly debt payment is far less than David’s monthly income.
If we use the formula, we will understand this clearly.
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 Let’s say that the expected monthly debt payment would be $2000 (credit card companies have restrictions that an individual can only expend a certain amount).
Using the formula of DTI, we get –
 Debt to Income = Expected monthly debt payment / David’s monthly income = $2000 / $10,000 = 20%.
Since the expected monthly debt payment is just 20% of David’s monthly income, the credit card company decides to go ahead with David’s application for a new credit card.
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Explanation of DTI or Debt to Income Ratio Formula
If an individual takes a loan, the lender needs to know whether the individual is capable enough to pay off the monthly due amount.
For example, if an individual wants to buy a television on equal monthly installments; she needs to produce proof of her monthly income to the lender so that the lender can check whether the individual has been earning enough to pay off the monthly debt amount.
This scenario also happens with a firm too. If a small firm goes to a bank and asks for a loan, the bank will first see how much the firm earns yearly, quarterly, and monthly. If the profit of the firm is enough, the bank will accept the loan proposal.
And to calculate whether an individual or a firm is worthy of a loan, we use DTI formula.
Use of DTI or Debt to Income Ratio Formula
DTI Ratio formula is used very broadly. As for example, if you apply for a personal loan, the lender will check the debt to income first.
If you apply for a credit card, the lender will check whether you have enough monthly earnings to pay off the due amount. Even for the mortgage acceptance, debt to income is used. The most generic form of checking whether an individual is worthy of getting a mortgage loan or not is to see whether the total debt to the monthly income ratio is 36% or less. If the total debt payment is around 50%, the individual may not be worthy to get a mortgage loan.
Calculator
You can use the following DTI/Debt to Income Ratio Calculator
Monthly Debt Payment  
Gross Monthly Income  
Debt to Income Ratio Formula =  
Debt to Income Ratio Formula = 


DTI / Debt to Income 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 Expected monthly debt payment and David’s monthly income.
You can easily calculate the ratio in the template provided.
You can download this DTI template here – Debt to Income Ratio Excel Template
Video on Debt to Income Ratio Formula
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This has been a guide to DTI / Debt to Income Ratio Formula, practical examples, and Debt to Income 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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