<P> Debt ratio = Total Liabilities Total Assets (\ displaystyle (\ mbox (Debt ratio)) = (\ frac (\ mbox (Total Liabilities)) (\ mbox (Total Assets)))) </P> <P> For example, a company with $2 million in total assets and $500,000 in total liabilities would have a debt ratio of 25% . </P> <P> Total liabilities divided by total assets or the debt / asset ratio shows the proportion of a company's assets which are financed through debt . If the ratio 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 higher the ratio, the greater risk will be associated with the firm's operation . In addition, high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will lower the firm's financial flexibility . Like all financial ratios, a company's debt ratio should be compared with their industry average or other competing firms . </P>

The debt ratio is a measure of a firm's
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