This is a financial metric that helps assess how much debts a company has in relation to its total assets. It is calculated by dividing a company’s total debts by its total assets.
Debt-to-asset = [Total Debts]/[Total assets]
By making debts to total assets ratio calculations, a company will easily understand its financial position. It reveals how much of the company is indebted to its creditors and how much is owned by the shareholders.
The metric also reveals how much money the company can raise from new debts. The debt-to-asset ratio of a company is often used in comparison to other companies in the same industry.
Should the ratio be higher, then it means the company is highly leveraged. That means if the company’s revenue should decline, it might struggle to pay its debt or even borrow more money for more leverage.