What is the debt/assets ratio?

The ratio of debt/assets is a measure of the company's total financial health. It is determined by the distribution of the total value of the assets by the total debt or obligation. The number it provides will tell investors a number of things. If the number is below one, the opposite is true. If the number is too far above one, it may be a signal for investors that the company has too much debt and is not worth a risk, despite what can be assets. This can be an attractive number for many investors. However, if Widget Company B has assets of $ 1 million USD and debt of $ 1.5 million, it has a debt/assets ratio of 1.5. Tamfore, most companies would like to improve this number if possible. If the company is too far from debt, this could reduce bond rating and mean higher interest rates for any future debt. This can disable companies to look for any future loans or at least lead to higher business costs.

There are things that a company can do to improve debt/assets ratio, such as swap debt and capital, another problem with shares or sales assets to pay off part of the debt. Companies choose different strategies depending on the circumstances and how much they want to improve this debt/assets ratio. Some companies can be almost where they want to be and manage the reduction of the ratio with capital at hand.

Some companies can do well with a higher debt/assets ratio. This could be caused by a number of reasons. First, the company may be in the industry that naturally carries a higher ratio as business costs. Comparison with its competitors is likely to reveal it. Second, perhaps in the recent past, it could have completed a large acquisition that could temporarily manage these numbers. Finally, while the debt/assets ratio is a good guide, it needs to be considered in the context of the company's specific situation.