Debt Ratio

This tutorial shows how to calculate the Debt Ratio in Excel

Excel

Debt Ratio in Excel

EXCEL FORMULA 1. Debt Ratio

EXCEL

Debt Ratio

=B5/C5

GENERIC FORMULA

=Total Liabilities/Total Assets

ARGUMENTS
Total Liabilities: The total debt and financial obligations of an entity.
Total Assets: The total resources owned by an entity.

EXPLANATION

The Debt Ratio, also known as the Debt to Asset Ratio, is used to measure the an entity's ability to repay its liabilities with its assets. The Debt Ratio formula takes the Total Liabilities and divides it by Total Assets to derive with the ratio.

The higher the ratio, meaning the entity is more leveraged, the greater the risk of default on its debt and all other financial obligations. A ratio of greater than 1 indicates that the entity has more liabilities than assets.

In this example the Total Assets are $200,000 and Total Liabilities are $50,000, therefore deriving with a Debt Ratio of 0.25 (25%), meaning the entity's assets are greater than it's liabilities and if all of the liabilities where required to be suddenly repaid the entity has enough assets to repay.