Debt to Asset Ratio is a

**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 to Capital Ratio = Total Debt / Total Asset

**Where,****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.- 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

**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**Solution:**Total Assets = ₹620 Crore; Total Debt = ₹450 Crore**Hence, Debt Asset Ratio = Total Debt / Total Asset = 450/650 = 9/13 or 0.69**

**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.****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**