Total Debt to Total Assets
Definition of 'Total Debt to Total Assets'
Total Debt to Total Assets refers to a ratio that gives investors and analysts a snapshot of the proportion of money owed to tangible (or intangible) resources. As such, it is a leverage ratio, or a financial measurement of a company’s ability to meet financial obligations and a picture of how much financial risk a company has taken on.
TheStreet Explains ‘Total Debt to Total Assets’
Total Debt to Total Assets is calculated by adding short term debt to long term debt and dividing by total assets. Short term debt refers to any liabilities incurred by a company that are due within one year on the balance sheet, whereas long term debt refers to liabilities incurred by a company that exceed one year on the balance sheet. Together, these two classes of debt constitute “total debt.” Total assets include a rather long list of possibilities such as cash, marketable securities, accounts receivable, prepaid expenses, inventory, fixed assets (such as a building), intangible assets (such as a patent or copyright or even a logo), and goodwill (such as a reputation for good customer relations).
Since Total Debt to Total Assets is a rather inclusive calculation (taking in all of the above), it is a useful tool to assess a company’s good standing. On the other hand, its inclusiveness comes with a caveat: the part that includes total assets does not distinguish between how good (or bad) a tangible or intangible asset might be. Regardless, analysts and investors will usually evaluate this ratio over time, which may not account for some of the mitigating details lost in lumping assets together, but it does offer a more complete look at a company’s leverage (and risk).
Terms Related to 'Total Debt to Total Assets':
Leverage ratio is the balance between the amount of debt a company ...