Debt-to-Asset Ratio
The percentage of your assets that are financed by debt
What You Need to Know
This ratio is calculated by dividing total debt by total assets. A lower ratio indicates better financial health. A ratio above 50% means more than half your assets are financed by debt. This metric helps assess financial risk and borrowing capacity.
Calculation: Debt-to-Asset Ratio = Total Debt ÷ Total Assets
Interpreting the Ratio:
- 0-30%: Excellent financial health
- 30-50%: Good financial health
- 50-70%: Moderate financial stress
- 70%+: High financial risk
Why It Matters:
- Shows how much of your wealth is borrowed
- Indicates financial flexibility
- Affects borrowing capacity
- Measures financial risk
Example: $200,000 debt ÷ $500,000 assets = 40% debt-to-asset ratio
Sources & References
This information is sourced from authoritative government and academic institutions:
- consumerfinance.gov
https://www.consumerfinance.gov/consumer-tools/financial-well-being/
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