Why Would I Need Total Debt for Total Assets Shown As A Ratio

The total debt / total assets ratio measures how leveraged a company is, meaning that what percentage of its assets is financed with debt. This accounting ratio is calculated by dividing the total debt of the company by the total assets. For example, if XYZ Corporation has $ 50 million in short-term and long-term debts and $ 100 million in total assets, the total debt to total assets ratio is 0. 5. In this scenario, XYZ Corporation is 50% leveraged; half of its assets are debt-financed. This ratio is a valuable tool for investors and creditors because it gives an Read More

How much debt is too much when calculating the capital budget?

  Capital is invested in the most lucrative projects to promote the growth of the company. This is particularly the case when debt capital projects are financed because debt payments are required by law, regardless of operating income. The net present value (NPV) calculation is used when budgeting capital to determine which projects generate the highest return. Although there is no set rule about how much debt there is too much, the NPV calculation is a good indication of whether a particular option is worth the cost of the debt needed to finance it. The NPV formula takes into account Read More

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