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Total Debt-to-Total Assets Ratio: Meaning, Formula, and What’s Good

debt to asset ratio interpretation

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If debt to assets equals 1, it means the company has the same amount of liabilities as it has assets. A company with a DTA of greater than 1 means the company has more liabilities than assets. This company is extremely leveraged and highly risky to invest in or lend to. A company with a DTA of less than 1 shows that it has more assets than liabilities and could pay off its obligations by selling its assets if it needed to. The return on assets ratio measures a company’s profitability relative to its total assets. It indicates how effectively a company utilizes its assets to generate profits.

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Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. These mid-sized companies have good growth potential and are reasonably well-established.

  • A high debt to assets ratio, typically above 50%, indicates a greater reliance on borrowed funds to finance the company’s assets.
  • This tells you that 40.7% of your firm is financed by debt financing and 59.3% of your firm’s assets are financed by your investors or by equity financing.
  • Determining individual financial ratios per period and tracking the change in their values over time is done to spot trends that may be developing in a company.
  • Conversely, once the company locks into debt obligation, the flexibility decreases.
  • By reducing debt, a company can improve its financial position and lower its debt to assets ratio.

Fidelity U.S. Bond Index Fund (FXNAX)

Knowing your debt-to-asset ratio can help you get a handle on your debt load while also keeping your company attractive to potential investors and creditors. If you’re ready to learn your company’s debt-to-asset ratio, here are a few steps to help you get started. If you’re wondering how to calculate your debt-to-asset ratio, it’s actually a lot easier than you may think. All you’ll need is a current balance sheet that displays your asset and liability totals. Knowing your debt-to-asset ratio can be particularly helpful when preparing financial projections, regardless of the type of accounting your business currently uses.

Note that you can implement the same strategy with Vanguard ETFs or another fund family as well. The exception is a multi-asset fund that’s designed to be a one-stop shop. This is the last fund on https://www.bookstime.com/ our list, and it’s a good option for investors who want a structured diversification strategy with minimal effort. The Fidelity index funds included below cover the most popular market segments.

debt to asset ratio interpretation

From the calculated ratios above, Company B appears to be the least risky considering it has the lowest ratio of the three. Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling. Companies can use this ratio to debt to asset ratio generate investor interest, create profit and take on further loans. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

debt to asset ratio interpretation

  • We favor U.S. stocks over Europe’s on stronger corporate earnings and the AI theme.
  • Of all the leverage ratios used by the analyst community to understand the financial position of a company, debt to assets tends to be one of the less common ones.
  • If you do choose to calculate your debt-to-asset ratio, do so on a regular basis so you can track any increases or decreases in your number and act accordingly.
  • The table below introduces the best Fidelity index funds with expense ratios no higher than 0.20%.