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Debt ratio is an indication of how much debt a company is holding, when compared to the value of its assets. It can also be applied to individuals: in which case it is the cost accrued by their debt compared to total income each year.

Debt ratio definition

Debt ratio is an indication of how much debt a company is holding, when compared to the value of its assets. It can also be applied to individuals: in which case it is the cost accrued by their debt compared to total income each year.

Debt ratio is derived by dividing total debt by total assets, and representing that figure as a percentage. 0% indicates that a company or individual has no debt or close to no debt, and 100% indicates that they have debt equal to total assets.

Typical debt ratios vary from industry to industry, with some businesses requiring large amounts of debt to function and some tending to remain relatively debt free.

 

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