Method of calculation
This synthetic ratio allows to assess the way in which the company's operation is financed. It provides the information on the total debt of the company and on the meaning of total liabilities in financing the company's assets.
- The higher the value of the ratio, the larger the company's debt.
- High values (above 50%) and the increase of ratio's value in time is interpreted as an increase of liabilities influence on the company's assets, and consequently - the increase in financial risk and the deterioration of company's creditworthiness.
- Low values and the decrease of ratio's value in time is interpreted as a reduction of liabilities engagement in financing of company's operation, meaning also the reduction of financial risk and the improvement of creditworthiness.