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What is the debt ratio?
Your debt-to-income ratio can be a valuable number. It is important for your credit score. It's exactly what it sounds; the amount of debt you have as compared to your overall income.
Importance of debt ratio
The debt ratio compares companies or individuals total debt to its total assets. It typically includes monthly debt payments such as rent, mortgage, credit cards, car payments, and other debts. It is calculated as the total liabilities divided by total assets, and is often expressed as a percentage.
Debt Ratio = Total Debt / Total Assets
Suppose a company has total assets of $3 million and total liabilities of $2.5 million. According to the formula, total liabilities of $2.5 million would be divided by the total assets of $3 million. Therefore, the debt ratio will be 0.8333.