debt to total assets ratio

(noun)

after tax income divided by liabilities

Related Terms

Examples of debt to total assets ratio in the following topics:

  • Total Debt to Total Assets

    • The debt ratio is expressed as Total debt / Total assets.
    • For example, a company with 2 million in total assets and 500,000 in total liabilities would have a debt ratio of 25%.
    • Debt ratios measure the firm's ability to repay long-term debt.
    • It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as 'goodwill').
    • Companies with high debt/asset ratios are said to be "highly leveraged," not highly liquid as stated above.

  • Analyzing Long-Term Liabilities

    • Analyzing long-term liabilities combines debt ratio analysis, credit analysis and market analysis to assess a company's financial strength.
    • In addition to credit rating agencies such as Standard & Poor's, analysts can use debt ratios to help benchmark a company to it's industry peers.
    • Popular debt ratios include: debt ratio, debt to equity, long-term debt to equity, times interest earned ratio (interest coverage ratio), and debt service coverage ratio.
    • There is more to analyzing long-term liabilities than simply reading a company's credit rating and performing independent debt ratio analysis.
    • Countries issue debt to build national infrastructure.

  • Ratio Analysis and EPS

    • If preferred dividends total $100,000, then that is money not available to distribute to each share of common stock.
    • Activity ratios measure how quickly a firm converts non-cash assets to cash assets.
    • Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.
    • Return on assets (ROA ratio or Du Pont Ratio): Net income / Average total assets
    • Ratio analysis includes profitability ratios, activity (efficiency) ratios, debt ratios, liquidity ratios and market (value) ratios

  • Sample Evaluation

    • ROA (Return on Assets) = Net Income / Total Assets = 1,057 / 13,840 = 7.6%
    • BEP Ratio = EBIT / Total Assets = 1,810/13,840 = 0.311
    • Debt Ratio = Total Debt / Total Assets = 6,500/13,840 = 47 percent
    • This indicates the percentage of a company's assets that are provided via debt.
    • This shows the relative proportion of shareholders' equity and debt used to finance a company's assets.

  • Debt Utilization Ratios

    • If Company F has $100,000 in assets, and $10,000 in total liabilities, it would have a debt ratio of 10,000 / 100,000 = 10%.
    • It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as "goodwill").
    • For example, a company with $2 million in total assets and $500,000 in total liabilities would have a debt ratio of 25%.
    • In addition, high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will lower the firm's financial flexibility.
    • The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

  • Debt to Equity

    • The debt-to-equity ratio (D/E) indicates the relative proportion of shareholder's equity and debt used to finance a company's assets.
    • The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.
    • A similar ratio is the ratio of debt-to-capital (D/C), where capital is the sum of debt and equity:D/C = total liabilities / total capital = debt / (debt + equity)
    • The debt-to-total assets (D/A) is defined asD/A = total liabilities / total assets = debt / (debt + equity + non-financial liabilities)
    • This is summarized by their leverage ratio, which is the ratio of total debt to total equity.

  • Debt-to-Equity Ratio

    • The Debt-to-Equity Ratio is a financial ratio that compares the debt of a company to its equity and is closely related to leveraging.
    • The Debt-to-Equity Ratio is a financial ratio indicating the relative proportion of shareholder's equity and debt used to finance a company's assets, and is calculated as total debt / total equity.
    • In order to obtain assets used in operations, a company will raise capital through either issuing shareholder's equity (e.g., publicly traded common stock) or debt (e.g., notes payable).
    • Calculating a company's debt to equity ratio is straight forward, and the debt and equity components can be found on a company's respective balance sheet.
    • For more advanced analysis, financial analysts can calculate a company's debt to equity ratio using market values if both the debt and equity are publicly traded.

  • Liquidity

    • Money, or cash, is the most liquid asset, and can be used immediately to perform economic actions like buying, selling, or paying debt, meeting immediate wants and needs.
    • The current ratio, which is the simplest measure and is calculated by dividing the total current assets by the total current liabilities.
    • This indicates the ability to service current debt from current income, rather than through asset sales.
    • Liquidity ratio expresses a company's ability to repay short-term creditors out of its total cash.
    • The liquidity ratio is the result of dividing the total cash by short-term borrowings.

  • Current Ratio

    • Current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.
    • Liquidity ratio expresses a company's ability to repay short-term creditors out of its total cash.
    • The liquidity ratio is the result of dividing the total cash by short-term borrowings.
    • The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.
    • Current asset is an asset on the balance sheet that can either be converted to cash or used to pay current liabilities within 12 months.

  • Return on Assets

    • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
    • The Return on Total Assets ratio is similar to the Asset Turnover Ratio in that both measure how effective a business's assets are in generating returns for the business.
    • You calculate the average value of the business's fixed assets by adding the value of the business's total fixed assets at the beginning of the accounting period to the value of the total fixed assets at the end of the period.
    • However, merely determining a business's return on asset ratio is insufficient to get a good understanding on how a business is doing.
    • This is generally done by comparing the current return on assets ratio to the company's past performance or to a competitor's ratio.