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Debt Ratio

The Debt Ratio is a good indicator of the level of leverage used by a company.  The Debt ratio measures the proportion of the total assets that are financed by debt and not stockholders.

The calculation of debt ratio is:

Total Liabilities / Total Assets

A high debt ratio will produce good results for stockholders as long as the company earns a rate of return on assets that is greater than the interest rate paid to creditors.

 
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