Debt to Assets Ratio

The debt to assets ratio (D/A) is a leverage ratio used to determine how much debt (a sum of long term and current portion of debt) a company has on its balance sheet relative to total assets. This ratio examines the percent of the company that is financed by debt. If a company's debt to assets ratio was 60 percent, this would mean that the company is backed 60 percent by long term and current portion debt.

Most companies carry some form of debt on its books. All things being equal, a higher debt to assets ratio is riskier for equity investors as debt holders often have seniority over company assets during bankruptcy. A ratio of 1 (unlikely) would indicate a company is 100% backed by debt, whereas a ratio of 0 means the company is carrying no debt on its books.

High D/A ratios will also mean that the company will be forced to make more interest payments on its debt before net earnings are calculated.

Debt to Assets Ratio = (Long Term Debt + Current Portion of Long Term Debt) / Total Assets