Liabilities To Assets Ratio

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Definition

The liabilities to assets (L/A) ratio is a solvency ratio that examines how much of a company's assets are made of liabilities. A L/A ratio of 20 percent means that 20 percent of the company are liabilities.

A high liabilities to assets ratio can be negative; this indicates the shareholder equity is low and potential solvency issues. Rapidly expanding companies often have higher liabilities to assets ratio (quick expansion of debt and assets).

Companies in signs of financial distress will often also have high L/A ratios. A company facing declining revenues and poor long-term prospects of growth will be impacted on retained equity. Companies with low L/A ratios indicate a company with little to no liabilities. With some notable exceptions, this is normally a good sign of financial health for the company.

Formula

YCharts calculates this formula as Total Liabilities / Total Assets.

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