Debt Ratio Calculator
How Much of the Business Belongs to Creditors
Every asset a company holds was financed one of two ways: by borrowing or by owners putting in equity. The debt ratio shows the split, expressing total liabilities as a share of total assets. A business financed mostly through debt carries more financial risk — it owes fixed payments regardless of how sales perform — while one financed mostly through equity has more flexibility to absorb a bad year.
The Formula
The result is expressed both as a decimal and as a percentage of assets financed by debt.
A Worked Example
| Total Liabilities | Total Assets | Debt Ratio |
|---|---|---|
| $200,000 | $800,000 | 0.25 (25%) |
| $500,000 | $800,000 | 0.625 (62.5%) |
| $650,000 | $800,000 | 0.8125 (81.25%) |
A ratio of 0.625 means 62.5% of the company's assets are financed by debt rather than owner equity.
Where This Calculation Matters
- Loan underwriting — lenders use debt ratio as a quick check on how leveraged a company already is before extending additional credit.
- Bankruptcy risk screening — a debt ratio approaching or exceeding 1.0 means liabilities equal or exceed assets, a warning sign frequently flagged in credit analysis.
- Capital structure planning — businesses deciding between debt and equity financing for expansion often track how a new loan would move the debt ratio before committing.
- Investor risk assessment — equity holders bear more downside risk as leverage rises, since debt holders are paid first in a liquidation.
How to Use This Calculator
- Enter Total Liabilities — all debts and obligations, short-term and long-term combined.
- Enter Total Assets — everything the business owns, at book value.
- Select Calculate to see the debt ratio as both a decimal and a percentage.
Related Calculations
Check whether earnings comfortably cover debt payments with the Interest Coverage Ratio Calculator, or review short-term liquidity with the Current Ratio Calculator.