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A company’s debt ratio is the ratio of total debt to total assets. Total debt includes both short-term and long-term debt. There are several debt ratios, which give users a general idea of the company's overall debt load as well as its mix of equity and debt.
Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount of debt held by a company, the greater the potential level of financial risk the company could face, including bankruptcy.
Debt is a form of financial leverage. The more levered a company is the greater the level of financial risk. On the other hand, a certain amount of leverage can contribute to a company’s growth. Well-run companies seek an optimal amount of financial leverage for their situation.
Debt Ratios: Overview Of Debt
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