Legal Definitions - debt ratio

The debt ratio is a financial metric used to measure a company's level of debt. It is calculated by dividing a company's total liabilities (both long-term and short-term) by its total assets. A low debt ratio indicates that a company has conservative financing and is less risky for investors.

For example, if a company has $500,000 in total liabilities and $1,000,000 in total assets, its debt ratio would be 0.5 or 50%. This means that half of the company's assets are financed by debt.

A low debt ratio is generally considered favorable because it indicates that a company has a strong financial position and is less likely to default on its debt obligations. This can make it easier for the company to borrow money in the future if needed.