debt ratio is a ratio that shows the ratio between a company's total debt and its equity. It is a central measure of how much of the company's financing comes from debt capital compared to equity capital.
Formel
The debt ratio is typically calculated as follows:
Debt ratio = Total debt / Equity
Fortolkning
- En low debt ratio (close to 0) indicates that the company is primarily financed by equity and thus has a more solid capital structure.
- En high debt ratio shows that the company is largely dependent on loans and creditors. This can increase the risk, but also allow for higher returns if the debt is used effectively.
Example
If a company has 2 million DKK in debt and 1 million DKK in equity:
Debt ratio = 2,000,000 / 1,000,000 = 2.0
This means that the company has twice as much debt as equity.
Anvendelse
The debt ratio is used by investors, banks and other stakeholders to assess a company's financial risk. An appropriate debt ratio depends on the industry and company type – capital-intensive industries such as industry and transport often have higher debt than service companies.