What Is A High Debt Ratio?

What does a high debt ratio mean?

The debt ratio is defined as the ratio of total debt to total assets, expressed as a decimal or percentage.

In other words, the company has more liabilities than assets.

A high ratio also indicates that a company may be putting itself at a risk of default on its loans if interest rates were to rise suddenly..

Is a high debt ratio good?

From a pure risk perspective, debt ratios of 0.4 or lower are considered better, while a debt ratio of 0.6 or higher makes it more difficult to borrow money. While a low debt ratio suggests greater creditworthiness, there is also risk associated with a company carrying too little debt.

What is a good cash to debt ratio?

You can calculate it if you divide the annual operating cash flow on the firm’s cash flow statement by current and long-term debt on the balance sheet. The ratio reflects a company’s ability to repay its debts and within what time frame, and an optimal ratio is 1 or higher.

What is the average debt ratio?

Generally, a ratio of 0.4 – 40 percent – or lower is considered a good debt ratio. A ratio above 0.6 is generally considered to be a poor ratio, since there’s a risk that the business will not generate enough cash flow to service its debt.

What does a debt ratio indicate?

Debt Ratio is a financial ratio that indicates the percentage of a company’s assets that are provided via debt. … If the ratio is greater than 0.5, most of the company’s assets are financed through debt. Companies with high debt/asset ratios are said to be highly leveraged.

Why is debt to equity ratio so high?

A high debt/equity ratio is often associated with high risk; it means that a company has been aggressive in financing its growth with debt. If a lot of debt is used to finance growth, a company could potentially generate more earnings than it would have without that financing.