Debt Ratio Equation Liabilities Over Net Worth
The debt ratio equation liabilities over net worth compares total liabilities to net worth. It shows how much debt supports each dollar of equity. A higher ratio means more leverage and higher financial risk.
How to Calculate the Debt Ratio
Divide total liabilities by net worth. Net worth equals total assets minus total liabilities. For example, if liabilities are 150,000 and net worth is 100,000, the ratio is 1.5. You can check definitions at Investopedia.
What the Ratio Tells You
A ratio above 1 means liabilities exceed equity, which can signal vulnerability. A ratio below 1 means equity is larger than debt, often viewed as more stable. Lenders and analysts use this metric to assess solvency and financial structure.
