What is a good debt ratio?

Below 0.5 is often considered conservative; above 0.6 to 0.7 is highly leveraged for most non-financial companies.

What is the equity ratio?

Equity ÷ total assets, which equals 1 − debt ratio.

Is the debt ratio the same as debt-to-income?

No. The debt ratio uses the balance sheet of a business; debt-to-income compares a person's monthly debt payments with their income.

Debt Ratio Formula and Calculator

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Debt Ratio Calculator

The debt ratio shows what fraction of a company’s assets is financed by creditors rather than owners. It divides total liabilities by total assets, both taken from the balance sheet, and is usually shown as a decimal or a percentage. Its complement, 1 − debt ratio, is the equity ratio: the share financed by shareholders.

Formula

Debt ratio = Total liabilitiesTotal assets

Where

Total liabilities: everything the business owes
Total assets: everything the business owns (liabilities + equity)

Calculator

Total liabilities

Total assets

Result and step-by-step solution

Debt ratio

0.6

60% of assets are financed with debt and 40% with equity.

Divide
450,000.00750,000.00 = 0.6 (60%)
Equity ratio
1 − 0.6 = 0.4

How to use the formula

A debt ratio of 0.6 means 60% of the assets are funded by liabilities and 40% by equity. The higher the ratio, the smaller the cushion of equity that protects lenders if asset values fall, so banks often set a maximum debt ratio in loan covenants. It is also an easy way to compare leverage across companies of very different sizes.

The example uses total liabilities of 450,000 and total assets of 750,000, giving 0.60, or 60%. The same numbers give a debt-to-equity ratio of 1.5 and an equity multiplier of 2.5; all three describe the same capital structure from different angles. For personal finances, the analogous measure lenders use is the debt-to-income ratio.

Frequently asked questions

What is the debt ratio formula?: Debt ratio = total liabilities ÷ total assets.
What is a good debt ratio?: Below 0.5 is often considered conservative; above 0.6 to 0.7 is highly leveraged for most non-financial companies.
What is the equity ratio?: Equity ÷ total assets, which equals 1 − debt ratio.
Is the debt ratio the same as debt-to-income?: No. The debt ratio uses the balance sheet of a business; debt-to-income compares a person’s monthly debt payments with their income.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.