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Calculate the debt-to-asset ratio for Design in a Day, when:
Calculate the debt-to-asset ratio for Digital Sorcery, when:
A company’s debt-to-assets ratio (or simply debt ratio) compares its total debts (or liabilities) to its total assets. It is a solvency ratio, which measures the portion of business assets that are financed through debt. From a lender’s point of view, it indicates potential operational risk of a business’ creditors demanding assets unexpectedly. Should this occur, a business might find it difficult to obtain loans for working capital or to grow the business with new projects, products or services. The higher the ratio value, the greater risk associated with the firm's operation. High ratio values might also indicate low borrowing capacity of a firm.
Debt ratio values range from 0.00 to 1.00. If the ratio value is less than 0.5, most of the company's assets are financed through equity. If the ratio is greater than 0.5, most of the company's assets are financed through debt. Companies with high debt/asset ratios are said to be highly leveraged. The definition of “highly leveraged” varies a lot from one industry to another, So, like all financial ratios, a company's debt ratio should be compared with industry averages or values of competing firms.
NOTE: Total liabilities include both current and non-current liabilities. It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as goodwill).