Question

Identify which of the following formulas correctly defines how to calculate the debt ratio. Multiple choice question. Total assets/Net income Total liabilities/Total equity Total liabilities/Total assets Total assets/Total liabilities

Answer 1

Answer:

Total liabilities/total assets

Explanation:

Answer 2

Debt ratio can be calculated by using the formula Total liabilities/total assets.

Debt ratio refers to the ratio of the debt and assets of a person or company. This is also known as the total debt to the total assets ratio.

• This ratio can also be known or referred to as the financial ratio measuring the extent of a company's leverage.

• This accounting aspect of a company is used to calculate how much of the company's assets are financed through debts.

• This means that the amount or portion of a business's assets that are financed by debts is the debt ratio of that company.

• To calculate the total debt ratio, the total liabilities should be divided by the total assets. The resulted amount is the debt ratio of that company.

A debt ratio enables a company to specify and identify how much percentage of the company's assets are liable for leverage. This allows the company to know how to manage the business or work through their debt accordingly. Thus, the correct formula to calculate the debt ratio is total liabilities/ total assets.

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