A set of financial ratios that are used to measure the amount of liabilities, particularly long-term debt in a company’s capital structure. A debt ratio signifies the amount of leverage involved in the debt-equity combination of financing for a company. The higher the leverage, the greater the long-term solvency risk that a company is exposed to.
The most commonly used variants of debt ratio include:
- Liabilities to assets ratio: a ratio of total liabilities to total assets.
- Long-term debt to shareholders’ equity ratio: a ratio of long-term debt to total shareholders’ equity.
- Long-term debt to long-term capital ratio: a ratio of long-term debt to “long-term debt plus total shareholders’ equity”.
- Liabilities to shareholders’ equity ratio: a ratio of total liabilities to total shareholders’ equity.
