What does a debt ratio of 0.55 mean? (2024)

What does a debt ratio of 0.55 mean?

($55%) Shareholder's equity. 45% Therefore, a debt-to-assets ratio of 0.55 signifies that the stockholder's equity is 45% of total assets.

Is .5 a good debt ratio?

Key Takeaways. Whether or not a debt ratio is "good" depends on the context: the company's industrial sector, the prevailing interest rate, etc. In general, many investors look for a company to have a debt ratio between 0.3 and 0.6.

What does a debt ratio of 55% mean?

It is an indicator of financial leverage or a measure of solvency. 1 It also gives financial managers critical insight into a firm's financial health or distress. If, for instance, your company has a debt-to-asset ratio of 0.55, it means some form of debt has supplied 55% of every dollar of your company's assets.

What does a debt ratio of 0.45 mean?

For example, if a company's debt-to-capital ratio is 0.45, it means 45% of its capital comes from debt. In such a case, a lower ratio is preferred, as it implies that the company can pay for capital without relying so much on debt.

What does a debt ratio of 0.75 mean?

It is discovered that the total assets number $124,000 while the liabilities are at $93,000. The debt ratio for the startup would be calculated as. $93,000/$126,000 = 0.75. That means the debt ratio is 0.75, which is highly risky. It indicates for every four assets; there are three liabilities.

What does a debt ratio of 0.5 mean?

Debt Ratio = 0.50, or 50%

A company that has a debt ratio at this level has a perfect balance in its debt and equity funding and would also be considered a low risk for a potential financing source.

Is 0.6 a good debt ratio?

Interpreting the Debt Ratio

Broadly speaking, ratios of 60% (0.6) or more are considered high, while ratios of 40% (0.4) or less are considered low. However, what constitutes a “good debt ratio” can vary depending on industry norms, business objectives, and economic conditions.

What does debt ratio tell you?

A debt ratio measures the amount of leverage used by a company in terms of total debt to total assets. This ratio varies widely across industries, such that capital-intensive businesses tend to have much higher debt ratios than others. A company's debt ratio can be calculated by dividing total debt by total assets.

What is a healthy debt ratio?

By calculating the ratio between your income and your debts, you get your “debt ratio.” This is something the banks are very interested in. A debt ratio below 30% is excellent. Above 40% is critical. Lenders could deny you a loan.

What is a bad debt ratio?

The bad debt to sales ratio represents the fraction of uncollectible accounts receivables in a year compared to total sales. For example, if a company's revenue is $100,000 and it's unable to collect $3,000, the bad debt to sales ratio is (3,000/100,000=0.03).

What is a good long term debt ratio?

What is a good long-term debt ratio? A long-term debt ratio of 0.5 or less is considered a good definition to indicate the safety and security of a business.

How much debt is OK for a small business?

If your business debt exceeds 30 percent of your business capital, this is another signal you're carrying too much debt. The best accounting software can help you track your business debt, manage your cash flow, and better understand your business' financial situation.

What is the best debt equity ratio?

The optimal debt-to-equity ratio will tend to vary widely by industry, but the general consensus is that it should not be above a level of 2.0. While some very large companies in fixed asset-heavy industries (such as mining or manufacturing) may have ratios higher than 2, these are the exception rather than the rule.

What does 0.35 debt ratio mean?

Debt to Asset Ratio = (300+70) / 1046 = 0.35

A ratio of 0.35 means that Company ABC's debt funds 35% of the company's assets. Sometimes this ratio is referred to as 35% instead of 0.35 but it means the same thing.

What is McDonald's debt to equity ratio?

McDonald's Debt to Equity Ratio: -8.359 for Dec.

How to calculate debt ratio?

What is 50% debt ratio?

If a company has a high debt ratio (above . 5 or 50%) then it is often considered to be"highly leveraged" (which means that most of its assets are financed through debt, not equity).

What does a debt ratio of 0.7 mean?

Alternatively, a ratio above 0.6 or 0.7 (60% to 70%) may produce higher risk and may discourage investment. The ratio value of 1.0, indicated that the total debts equal the total amount of assets.

What does a debt ratio of 0.4 mean?

The calculation considers all of the company's debt, not just loans and bonds payable, and all assets, including intangibles. If a company has a total debt-to-total assets ratio of 0.4, 40% of its assets are financed by creditors, and 60% are financed by owners' (shareholders') equity.

Is 0.2 a good debt ratio?

Low debt ratio: If the result is a small number (like 0.2 or 20%), it means the company doesn't owe a lot compared to what it owns. This is usually a good sign. A lower debt ratio indicates a healthier financial position.

Is 75% a good debt ratio?

A debt ratio below 0.5 is typically considered good, as it signifies that debt represents less than half of total assets. A debt ratio of 0.75 suggests a relatively high level of financial leverage, with debt constituting 75% of total assets.

What is an example of a debt ratio?

Let's say you have 600,000$ in total assets and 150,000$ in liabilities. To calculate the debt ratio, divide the liability (150,000$ ) by the total assets (600,000$ ). This results in a debt ratio of 0.25 or 25 percent.

How much debt is too much?

Most lenders say a DTI of 36% is acceptable, but they want to lend you money, so they're willing to cut some slack. Many financial advisors say a DTI higher than 35% means you have too much debt. Others stretch the boundaries up to the 49% mark.

What are the most important debt ratios?

The debt-to-asset ratio, the debt-to-equity ratio, and the times-interest-earned ratio are three important debt management ratios for your business. They tell you how much of your company's operations are based on debt, rather than equity.

Is a 50% debt-to-income ratio good?

A general rule of thumb is to keep your overall debt-to-income ratio at or below 43%. This is seen as a wise target because it's the maximum debt-to-income ratio at which you're eligible for a Qualified Mortgage —a type of home loan designed to be stable and borrower-friendly.