Indebtedness

Indebtedness is an economic term that refers to the fact that the firm uses foreign capital to finance its assets. The use of foreign capital affects the return and the level of business risk. Large companies are usually financed by a combination of equity and foreign capital. Financing only from their own equity reduces the overall return, when financing from foreign capital is not possible for legal reasons (the need for a certain amount of capital at start up).

Use of the indebtedness in practice: The term indebtedness occurs in the enterprise mainly in the context of debt ratios.