Debt-assets Ratio
What is it? The ratio of a companys liabilities to its total assets. Long-term debt-assets is the ratio of long-term liabilities (those that wont be paid off in one year) to total assets. Total debt-assets is the ratio of long-term and current liabilities (debt that will be paid off within one year) to total assets.The higher the level of debt, the more important it is for a company to have positive earnings and steady cash flow. Assets are also important to consider because they can be a cushion against losses in the event of liquidation. Debt is not bad, but since it requires the timely payout of interest to debt holders, it is important to analyze a company within the context of the likeliness that it will have adequate resources to meet its payments in the event of major losses. Because of the nature of certain industries, some industry sectors contain only companies with a high (or low) ratio. So, for comparative purposes, debt-assets ratio is most useful for companies within the same industry. See also debt-equity ratio.Added By: Dylan
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