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Total Liabilities
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| Debt to Asset Ratio =
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Total Assets
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Explanation of Debt to Asset Ratio:
The Debt to Asset Ratio measures the percentage of the company's
Total Assets that are financed with debt (Total Liabilities). This ratio
basically looks at what debt the company owes, and compares that debt to what
assets the company owns.
Importance of Debt to Asset Ratio:
The lower the Debt to Asset Ratio, the better, as companies with
high amounts of debt introduce more risk. You certainly want to look very
hard at companies that have more Total Liabilities than Total Assets, as this
is a precarious position for a company to be in. Depending on the
industry of the company, you might expect the company to have two or three
times as many assets as liabilities. Anything less than this might be a
signal that the company is running into trouble.
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