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Debt Ratio

Trading Term

Several debt ratios are used to assess company risk:

  • Debt to Assets Ratio: Measures debt (long term and current) relative to total assets. An increasing ratio indicates higher risk for equity investors.
  • Total Debt/Total Assets: Calculated as Total Long Term Debt divided by Total Shareholder Equity. Higher ratios suggest higher risk.
  • Long-Term Debt/Equity: Calculated as Total Long Term Debt divided by Total Shareholder Equity for the most recent interim period. Higher ratios indicate increased riskiness.

These ratios are components of measuring a company’s Financial Strength, along with other metrics like the Quick Ratio.

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