Total Debt to Total Assets, also known as Rate of total debt, usually not abbreviated. It is a term that indicates the solvency of the enterprise. The indicator measures whether the amount of equity is appropriate to enterprise’s obligations.
The indicator is one of balance sheet debt ratios (of long-term financial stability).
Total Debt to Total Assets = Liabilities (short-term + long-term debt) / Assets
Use of the ratio in practice: This ratio is important especially for enterprise’s creditors who prefer its low value. The higher its value, the greater the risk of creditors. The indicator should be, however, assessed in terms of entire enterprise and the structure of foreign capital. For holders of common shares can be high value of this indicator is acceptable if it is able to achieve a higher percentage of profitability than the percentage of interest paid on foreign capital.
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