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

You should try and break down the debt/asset ratio and make sure that you are on the favorable side of it.

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Many time before you are eligible for a loan, the loan officer has to determine your debt/asset ratio. This will determine your loan amount and interest rate.

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Looking at a company's financial balance sheet to figure out financial health of the company, the debt/asset ratio shows a great way to figure out if investment in the company is worthwhile.

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