Debt to Asset Ratio
Why it’s Important
Debt to Asset Ratio is an important financial metric, which measures the extent to which the firm’s assets are being financed by debt. A low result should be aimed for. Any value above 1 should be investigated with due diligence, as this indicates that the firm doesn’t currently have sufficient Assets to cover its outstanding obligations. Having a high Debt to Asset Ratio places the firm in a risky position, particularly if accompanied by a low or negative Operating Profit. Steps should be taken in such an eventuality to reduce the firm’s burden of Debts relative to its Assets.
Making the KPI
To calculate your Debt to Asset Ratio you will need to know:
- Your Current Liabilities
- Your Current Assets
Both values are financial Account Categories which should be pulled automatically into FUTRLI from your accountancy package of choice, or uploaded via CSV.
You can calculate your Debt to Asset Ratio by dividing your debts by your assets:
Once you’ve created your formula you can sit back and view your results: