This calculator provides the user with the three most common debt ratios. Using assets, liabilities, and owner's equity from the balance sheet, and operating income and interest expense from the income statement, this calculator provides the debt, debt-to-equity, and interest coverage ratio.
Calculator Definitions
The variables used in our online calculator are defined in detail below, including how to interpret the results.
Assets ($)
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Often defined as an economic resource, which is owned by the corporation and expected to provide future benefits to its operation; the total assets of a business are found on the company's balance sheet.
Liabilities ($)
Also referred to as the debts of a corporation, nearly all businesses, even the most successful and profitable of companies, make purchases on credit. The total liabilities of a business are found on the company's balance sheet.
Owner's Equity ($)
The resources that have been invested by the owners of the company; the owner's equity in a business are found on the company's balance sheet.
Accounts Receivable ($)
This is money owed to the company by its customers, but not yet paid.
Operating Income ($)
This is the measure of a company's ability to earn money from ongoing operations; a business's operating income is found on the company's income statement.
Interest Expense ($)
The payments that have come due on amounts borrowed by the company; interest expense can be found on a company's income statement.
Debt Ratio
The value for debt ratio is found by dividing liabilities by assets. Generally, it's desirable to have a debt ratio that is less than 0.5. As is the case with many financial ratios, benchmark comparisons should be made against companies in similar industries.
Debt to Equity
This next ratio compares liabilities to owner's equity. This measure tells the analyst how much debt is used to finance the company's assets relative to equity. Debt to equity ratios can vary greatly by industry.
Interest Coverage
Also known as times interest earned, this measure provides an indication of a company's ability to meet its interest payments using income generated by ongoing operations. As a general rule, the interest coverage ratio should be around 3.0 or higher; benchmarks and comparisons should be made between companies in similar industries.
Debt and Leverage Ratios Calculator
Disclaimer: These online calculators are made available and meant to be used as a screening tool for the investor. The accuracy of these calculations is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.
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