The debt to total assets ratio measures the percentage of the total assets that creditors provide; computed by dividing total debt (both current and log-term liabilities ) by total assets. This ratio indicates the company’s degree of leverage. It also provides some indication of the company’s ability to withstand losses without impairing the interests of creditors. The higher the percentage of debt to total assets, the greater the risk that the company may be unable to meet its maturing obligations.
Debt to total assets ratio = Total Debt ÷ Total Assets
More from this Section
- Special journal
Special journal refers to a journal that records similar types of transactions, such as all credit sales.
Ratio is an expression of the mathematical relationship between one quantity and another. The relationship may be expressed either as a percentage, a rate, or a simple proportion.
- Period costs
Period costs are costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product.
- Just-in-time (JIT) inventory method
Just-in-time (JIT) inventory method is an inventory system in which companies manufacture or purchase goods just in time for use.
- Internal auditors
Internal auditors are company employees who continuously evaluate the effectiveness of the company’s internal control systems. Large companies often assign...
- Earning power
Earning power means the normal level of income to be obtained in the future. Earning power differs from actual net income by the amount of irregular revenues...
- Index number
Index number is a quantitative device that condenses or summarizes a body of data with several characteristics into a single numerical expression.