Calculate the financial leverage ratio, debt-to-equity, debt-to-assets, and debt-to-capital ratio from a company’s total assets, total debt, and total equity.
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Financial Leverage Ratio Formula
The financial leverage ratio shows how much a company relies on debt relative to its equity or assets. This calculator supports six leverage measures: assets/equity, debt/equity, debt/assets, debt/capital, net debt/EBITDA and bank Tier 1 capital/exposure. Select the measure and the unknown, and use matching dates, currency scales and definitions.
Financial Leverage Ratio = Total Assets / Total Equity
Debt-to-Equity Ratio = Total Debt / Total Equity
Debt-to-Assets Ratio = Total Debt / Total Assets
Debt-to-Capital Ratio = Total Debt / (Total Debt + Total Equity)
Where Total Assets is everything the company owns, Total Equity is the owners' or shareholders' stake, and Total Debt is the company's interest-bearing borrowings. In the financial leverage ratio, a value of 2 means total assets are twice the size of equity, so about half of the assets are funded by liabilities. The debt ratios compare interest-bearing debt with different bases. Net debt/EBITDA = (debt − cash) / EBITDA; negative or near-zero EBITDA needs careful interpretation. Bank leverage (%) = regulatory Tier 1 capital / regulatory exposure × 100. Bank exposure includes regulatory adjustments and is not simply accounting assets; this calculator does not determine compliance. See the Basel leverage framework.
Leverage Ratio Examples
The ranges below describe arithmetic relationships, not universal healthy levels or credit ratings. Compare consistent definitions within the same industry and review cash flow, covenants and the full financial statements.
| Debt-to-Equity Ratio | General Interpretation |
|---|---|
| Below 0.5 | Debt is less than half of equity |
| 0.5 to 1.5 | Debt is 0.5 to 1.5 times equity |
| 1.5 to 2.5 | Debt is 1.5 to 2.5 times equity |
| Above 2.5 | Debt exceeds 2.5 times equity |
| Financial Leverage Ratio (Assets / Equity) | General Interpretation |
|---|---|
| 1.0 to 2.0 | Equity is 50% to 100% of assets |
| 2.0 to 3.0 | Equity is about one-third to one-half of assets |
| Above 3.0 | Equity is less than one-third of assets; liabilities are not necessarily all debt |
Example Problems
Example 1. A company reports total assets of $500,000 and total equity of $200,000. The financial leverage ratio is 500,000 / 200,000 = 2.5. Total assets are 2.5 times equity, so 60 percent of the assets are funded by liabilities.
Example 2. A company has total debt of $150,000 and total equity of $200,000. The debt-to-equity ratio is 150,000 / 200,000 = 0.75. The company uses 75 cents of debt for every dollar of equity.
FAQ
What is a good financial leverage ratio?
There is no single good value because it depends on the industry. Capital-heavy sectors such as utilities and banking often carry higher ratios than software or services firms. Compare the result against direct competitors and the company's own history.
Is a higher leverage ratio better?
Not on its own. More leverage can raise returns on equity when business is strong, but it also increases the risk of distress if earnings fall, because interest and principal still have to be paid.
What is the difference between debt-to-equity and debt-to-capital?
Debt-to-equity divides total debt by equity, while debt-to-capital divides total debt by the sum of debt and equity. With nonnegative debt and equity and a positive total, debt-to-capital is between 0 and 1. Negative equity falls outside this calculator’s supported equity-based modes.
