What is the formula used to calculate the debt-to-assets ratio?

The debt-to-assets ratio is a financial metric that indicates the proportion of a company's assets that are financed by debt. This ratio helps assess the financial leverage of a company and its overall risk profile.

The correct formula for calculating the debt-to-assets ratio is Total Liabilities divided by Total Assets. This means that you take the sum of both current and noncurrent liabilities (all debts) and divide it by the total assets owned by the company. This ratio provides insight into how much of the company's assets are funded through borrowing, indicating the level of financial risk.

By utilizing total liabilities (which include both current and noncurrent debts) in the numerator, the ratio captures the entirety of the company’s obligations relative to its total assets. Therefore, this approach accurately reflects the leverage position of the company and aids investors and analysts in understanding the balance between what the company owns and what it owes.