debt/asset ratio

Definition

Total liabilities divided by total assets. The debt/asset ratio shows the proportion of a company's assets which are financed through debt. If the ratio is less than one, most of the company's assets are financed through equity. If the ratio is greater than one, most of the company's assets are financed through debt. Companies with high debt/asset ratios are said to be "highly leveraged," and could be in danger if creditors start to demand repayment of debt.

Also see: List of Important Financial Ratios for Stock Analysis at InvestorGuide.com.

Use debt/asset ratio in a sentence

As a creditor it is better to invest in a company that has a debt/asset ratio that is less than one because then the company is primarily financed through equity rather than debt.

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debtaholic debt/equity ratio