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Finance Formulas / July 19, 2018 / Aniyah Booth

A ratio under 1 indicates that a company’s liabilities are greater than its assets and suggests that the company in question would be unable to pay off its obligations if they came due at that point. While a current ratio below 1 shows that the company is not in good financial health, it does not necessarily mean that it will go bankrupt.

Total debt to total assets is a leverage ratio that defines the total amount of debt relative to assets. This metric enables comparisons of leverage to be made across different companies. The higher the ratio, the higher the degree of leverage (DoL) and, consequently, financial risk. The total debt to total assets is a broad ratio that includes long-term and short-term debt (borrowings maturing within one year), as well as all assets – tangible and intangible.

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