Debt to Asset Ratio is a

$$Debt\quad to\quad Capital\quad Ratio=\frac { Total\quad Debt }{ Total\quad Asset }$$

hence, total debt includes all debts/liability payable within a year and payable in the long-term.

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**type of Solvency Ratio that determines the contribution of Debt in a company’s Total Asset.**It is a measure of how many parts of the total asset of a company is in the form of Debt.__Creditor's contribution is termed as Debt.__$$Debt\quad to\quad Capital\quad Ratio=\frac { Total\quad Debt }{ Total\quad Asset }$$

**Total Debt = Long Term Debt + Current or Short-Term Debt;**hence, total debt includes all debts/liability payable within a year and payable in the long-term.

**Where,**- And
**Total Asset = Total Equity + Total Debt OR Sum of all Assets (Current, Non-Current, Fixed); t**otal capital implies shareholders as well as creditors contribution.

## Significance and Interpretation

**Debt Asset Ratio = 0.5:**This implies that the total assets are comprised of 50% of the debt.**Debt Asset Ratio <0.5:**This implies that the total assets are comprised of less than 50% of the debt.**Debt Asset Ratio > 0.5:**This implies that the total assets are comprised of more than 50% of the debt. This situation is not considered to be good and the company faces issues in case of a rise in interest rate.**The ideal Debt Asset Ratio < 0.5**, which indicates that the company has**less than half of the assets as debt**(both current as well as non-current). However, it must be noted that this limit may shift depending upon the regulatory reforms and/or type of business.__A low Debt Asset Ratio is beneficial for lenders to the company, wherein a high Debt Asset Ratio is beneficial to the company for trading in Equities.__

### Examples

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**Example 1:**

**M/S ABC Ltd. reported total debts worth ₹450 Crores and total assets as ₹650 Crores, find the proprietary ratio of M/S ABC Ltd.**

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**Solution: **

**Total Assets =**₹620 Crore;

**Total Debt =**₹450 Crore

**Hence, Debt Asset Ratio =**Total Debt / Total Asset

**⇨**450/650

**⇨**9/13 or 0.69

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**Example 2: **

**M/S XYZ Ltd.’s Balance Sheet as on 31-March-2012 is given below, calculate the Debt to Asset Ratio for M/S XYZ.**

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**Solution:**

**Total Debt =**Long Term Borrowings + Current Liabilities

**⇨**150000

**Total Asset =**Fixed Assets + Non- Current investments + Current Assets

**⇨**850000

**Debt Asset Ratio =**Total Debt / Total Asset

**⇨**150000 / 850000

**⇨**3 / 17

**Hence, Debt Asset Ratio = 3/17 or 0.176**