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Debt Ratio  - a financial ratio that measures the proportion of total assets provided by debt - both long term and current. The calculation is total debt (the sum of current liabilities and long-term liabilities) divided by (the sum of current assets, fixed assets, and other assets such as 'goodwill'):

Debt Ratio = Total Liabilities / Total Assets

Used with other financial analytics, the debt ratio can help investors determine a company's level of risk.

Companies with high debt ratios are said to be "highly leveraged". A Company with a high debt ratio is very sensitive to changes in operations. Increases and decreases in profits / cash flow are magnified. A drop in cash flow from operations in a highly leverage company may result in the company not being able to service its debt and creditors could start to demand repayment of debt.

Like all financial ratios, a company's debt ratio should be compared with their industry average or other competing firms.

Example: American International Group (AIG)

Fiscal Year Ended	12/31/08	12/31/07	12/31/06
Total Liabilities	$807,708,000	$964,704,000	$877,737,000
Total Assets	$860,418,000	$1,060,505,000	$979,414,000
Debt Ratio	93.8%	91.0%	89.6%

AIG is highly leveraged