Debt Ratios Calculator

Calculate debt ratio, debt equity ratio, and times interest earned ratio for one or two companies/periods

Company Financial Data

Column A (Primary)

$
$
$
$
$
$
$
$

Column B (Secondary – Optional)

$
$
$
$
$
$
$
$

Calculated Ratios

About Debt Ratios

Debt Ratio

Measures the portion of a company’s finances that are funded through debt. Calculated as (current liabilities + long-term liabilities) ÷ (current assets + long-term assets).

Debt Equity Ratio

Measures the amount of company’s finance through debt. By using shareholder’s equity, it shows what creditors/lenders hold versus what shareholders have invested.

Times Interest Earned Ratio

Measures a company’s ability to make interest payments, similar to the “debt to income” ratio used in consumer credit scoring.

Debt Ratios Calculator

Debt Ratios Calculator is an essential tool for anyone analyzing the financial health of a company. It helps measure how much of a business is financed through debt compared to assets or equity, and whether it can comfortably meet its interest obligations. By using this calculator, you can quickly compute three core debt ratios:

  • Debt Ratio
  • Debt-to-Equity Ratio
  • Times Interest Earned (TIER) Ratio

Each of these ratios reveals different insights into a company’s risk, leverage, and long-term sustainability.

For a complete overview of how financial ratios impact business performance, explore our Financial Ratio Calculators collection. You’ll find tools to measure profitability, liquidity, and operational efficiency all in one place.

What Is a Debt Ratios Calculator?

A Debt Ratios Calculator takes financial data such as liabilities, assets, equity, net income, taxes, and interest, then outputs ratios that show how leveraged a company is. It can be used for a single company or to compare two companies side by side.

For example:

  • If you want to measure your company’s financial risk during one reporting period, enter your data into Column A.
  • To compare multiple companies or track performance across different periods, you can use both Column A and Column B. The calculator will even show percentage changes between the two sets of results.

This makes it an efficient financial analysis tool, especially when used alongside related metrics like those in a Liquidity Ratios Calculator, which focuses on short-term solvency.

Key Debt Ratios Explained

1. Debt Ratio

The Debt Ratio shows the proportion of total assets financed by debt. A higher value means greater reliance on borrowed funds.

Formula: Debt Ratio = (Current Liabilities + Long-Term Liabilities) ÷ (Current Assets + Long-Term Assets)

  • Low Debt Ratio: Indicates strong financial stability and less risk.
  • High Debt Ratio: Suggests higher financial leverage, which may increase risk.

This ratio is particularly useful when compared with industry benchmarks.

2. Debt-to-Equity Ratio

The Debt-to-Equity Ratio compares a company’s liabilities to shareholders’ equity. It measures how much financing comes from creditors versus owners.

Formula: Debt-to-Equity Ratio = (Current Liabilities + Long-Term Liabilities) ÷ Equity

  • Lower Ratio: More equity-based funding, usually less financial risk.
  • Higher Ratio: Greater reliance on debt financing.

Lenders often use this metric to evaluate whether a company is over-leveraged. It works well in combination with performance metrics from an Operations Ratios Calculator, which examines efficiency.

3. Times Interest Earned Ratio (TIER)

The Times Interest Earned Ratio measures how easily a company can cover its interest expenses. It is also called the interest coverage ratio.

Formula: TIER = (Net Income + Interest + Taxes) ÷ Taxes

  • Higher TIER: Indicates strong ability to pay interest obligations.
  • Lower TIER: Suggests potential difficulty meeting debt commitments.

Investors often look at this ratio to assess long-term viability. When paired with insights from a Profitability Ratios Calculator, it provides a fuller picture of financial performance.

Input Definitions for Debt Ratios Calculator

To use the Debt Ratios Calculator effectively, it’s important to understand each input:

  • Current Liabilities: Short-term debts due within 12 months (e.g., accounts payable, short-term loans).
  • Long-Term Liabilities: Debts payable beyond 12 months (e.g., bonds, mortgages).
  • Current Assets: Assets convertible into cash within 12 months (e.g., inventory, receivables).
  • Long-Term Assets: Assets like property, equipment, and vehicles not easily converted into cash.
  • Equity: Shareholder contributions plus retained earnings.
  • Net Income: Profit after taxes and interest.
  • Interest: Payments made on loans, bonds, and mortgages.
  • Taxes: Total tax obligations during a reporting period.

Why Debt Ratios Matter

Debt ratios provide critical insights into a company’s risk profile:

  • Risk Assessment: High leverage increases vulnerability during downturns.
  • Creditworthiness: Lenders assess these ratios before extending loans.
  • Investment Decisions: Investors use them to judge long-term stability.

By combining debt ratios with other tools such as a Stock Ratios Calculator, analysts gain a holistic view of company performance.

Example Calculation

Let’s say a company has the following data:

  • Current Liabilities = $50,000
  • Long-Term Liabilities = $150,000
  • Current Assets = $120,000
  • Long-Term Assets = $180,000
  • Equity = $100,000
  • Net Income = $40,000
  • Interest = $10,000
  • Taxes = $15,000

Debt Ratio: (50,000 + 150,000) ÷ (120,000 + 180,000) = 200,000 ÷ 300,000 = 0.67

Debt-to-Equity Ratio: 200,000 ÷ 100,000 = 2.0

Times Interest Earned Ratio: (40,000 + 10,000 + 15,000) ÷ 15,000 = 65,000 ÷ 15,000 = 4.33

Interpretation:

  • The company finances 67% of assets through debt.
  • It has twice as much debt as equity.
  • It can cover interest payments about 4 times with current earnings.

Advantages of Using a Debt Ratios Calculator

  • Accuracy: Eliminates manual errors in complex calculations.
  • Efficiency: Quick results for single or multiple datasets.
  • Comparison: Ideal for benchmarking against industry peers.
  • Decision Support: Helps businesses, lenders, and investors make informed financial decisions.

The Debt Ratios Calculator is a powerful way to evaluate financial leverage and stability. Whether you’re a business owner assessing your debt load, an investor comparing companies, or a lender reviewing creditworthiness, these ratios provide essential insights. When combined with other tools like liquidity, operations, profitability, and stock ratio calculators, you get a complete financial health assessment.

For any serious financial analysis, understanding and applying these ratios is not optional—it’s essential.