By Andrew Stotz | August 10, 2020
See Also
Asset Deficiency: What it is, How it Works, ExampleAsset Turnover Ratio: Meaning, Formula and How to Calculate4 Balance Sheet Problems and Prevention Strategies for Business Owners9.a. Overview of AccountingDefinition of Liabilities to Assets Ratio
- The liabilities to assets ratio is also known as the debt to asset ratio.
- The liabilities to assets ratio shows the percentage of assets that are being funded by debt.
- The higher the ratio is, the more financial risk there is in the company.
Want to learn more financial ratios?
Get the eBook explaining some of the most useful ratios for free now.
What is the Formula for Liabilities to Assets Ratio?
- The liabilities to assets ratio can be found by adding up the short term and long term liabilities, dividing them by the total assets, and then multiplying the answer by 100.
[(Short Term Liabilities + Long Term Liabilities) ÷ Total Assets] x 100
Liabilities to Assets Ratio in Practice
- YFR studio produces music hence requires a lot of equipment which costs a lot of money. YFR’s total assets are worth $5,000,000, and its total liabilities are worth $2,000,000. What is the liabilities to assets ratio?
- 2,000,000 ÷ 5,000,000 = 0.4
- 40% is the liabilities to asset ratio at YFR
Learn some of the most useful financial ratios!
Don’t miss this free eBook.
87 Shares
