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Debt Ratio Calculator

Calculate the Debt Ratio to assess long-term solvency. Compare company debt levels against sector benchmarks with visual risk indicators.

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About

The Debt Ratio determines the percentage of a company's assets that are provided via debt. It is a fundamental measure of long-term solvency and financial structure. Unlike the Debt-to-Equity ratio, this metric looks at the total asset pie.

A ratio of 0.5 (50%) indicates a perfectly balanced capital structure. Ratios consistently above 0.6 typically signal higher risk, leading to higher borrowing costs and potential credit downgrades. However, capital-intensive industries like Utilities naturally run higher ratios due to stable cash flows. This tool normalizes the result against sector averages.

solvency liabilities balance-sheet risk-assessment corporate-finance

Formulas

The formula divides Total Liabilities by Total Assets.

Debt Ratio = Total LiabilitiesTotal Assets

Total Liabilities must include both short-term (current) and long-term obligations.

Reference Data

SectorAvg Debt RatioRisk Threshold (>)
Software / Tech0.30 - 0.400.50
Manufacturing0.40 - 0.500.60
Retail0.50 - 0.600.70
Utilities / Energy0.55 - 0.650.75
Pharmaceuticals0.35 - 0.450.55

Frequently Asked Questions

A ratio of 1.0 means Total Liabilities equal Total Assets. The company has zero equity. If the ratio exceeds 1.0, the company has negative equity and owes more than it owns.
Standard calculation uses reported Balance Sheet figures. However, strict analysts may adjust the 'Liabilities' figure to include operating leases or pension obligations for a more accurate solvency picture.
A company can lower the ratio by paying off debt (decreasing liabilities), issuing new stock (increasing assets via cash injection), or retaining earnings.