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Debt to Worth Formula:
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The Debt to Worth Ratio, also known as the Debt to Net Worth Ratio, is a financial metric that compares a company's total liabilities to its net worth (owner's equity). It measures how much debt is being used to finance assets relative to the value of shareholders' equity.
The calculator uses the Debt to Worth formula:
Where:
Explanation: The ratio shows the proportion of debt financing relative to equity financing. A higher ratio indicates more debt relative to net worth.
Details: This ratio is crucial for assessing financial risk and leverage. Lenders and investors use it to evaluate a company's financial health and ability to meet its debt obligations.
Tips: Enter total debt and net worth in USD. Both values must be valid (total debt ≥ 0, net worth > 0). Net worth cannot be zero or negative for this calculation.
Q1: What is a good Debt to Worth Ratio?
A: Generally, a ratio below 1.0 is considered good, indicating more assets than liabilities. Ratios above 2.0 may indicate higher financial risk.
Q2: How is this different from Debt to Equity Ratio?
A: While similar, Debt to Worth uses net worth (assets minus liabilities) as the denominator, whereas Debt to Equity uses total equity.
Q3: Should this ratio be used for personal finance?
A: Yes, individuals can use this ratio to assess their personal financial leverage, though it's more commonly used for businesses.
Q4: What industries typically have higher ratios?
A: Capital-intensive industries like manufacturing and utilities often have higher ratios than service-based businesses.
Q5: How often should this ratio be calculated?
A: For businesses, it should be calculated quarterly with financial statements. For personal finance, annually or when major financial changes occur.