How is the Debt Ratio calculated?

The Debt Ratio is calculated by dividing total liabilities by total assets. This ratio measures the proportion of a company's assets that are financed by debt, providing insights into the financial leverage and risk associated with that company.

This ratio is significant because a higher debt ratio indicates that a larger portion of assets is financed through borrowing, which may imply greater financial risk. Conversely, a lower debt ratio suggests a more solvent company with less reliance on debt financing.

Understanding this calculation helps stakeholders analyze the company’s financial structure and assess its risk level in terms of solvency. It is crucial for investors, creditors, and management to evaluate how effectively a company is managing its liabilities.