debt ratio
Definition
Debt capital divided by total assets. This will tell you how much the company relies on debt to finance assets. When calculating this ratio, it is conventional to consider both current and non-current debt and assets. In general, the lower the company's reliance on debt for asset formation, the less risky the company is since excessive debt can lead to a very heavy interest and principal repayment burden. However, when a company chooses to forgo debt and rely largely on equity, they are also giving up the tax reduction effect of interest payments. Thus, a company will have to consider both risk and tax issues when deciding on an optimal debt ratio.
 Cite this definition
Related Terms
ratio, equity multiplier
'debt ratio
' appears in the definitions of these terms on BusinessDictionary.com
balance sheet ratios
Related Research Articles from the InvestorGuide.com University
Goals and ProgressContinuing the discussion of our simple 7 step budgeting process, this article includes information on how to set goals, and consequently how to achieve them. 
Introduction to BudgetingLearn how to get your financial house in order. Here we describe the overall approach we recommend: choose a system, calculate your current income and expenses and compare the two, set specific goals and monitor your progress as you work toward them.
SavingHave extra money lying around? This article tells you why you should save and how much you should save, with specific emphasis on creating an emergency fund, and when to invest in high-risk, high-return ventures.
Featured Sponsor
|
