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.