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Debt to Asset Ratio

Provided by the International Finance Corporation


This ratio measures the extent to which the assets of the business are funded by loans and other borrowings including trade creditors. Assets can be funded either from borrowings (including trade creditors) or from owners’ equity (including retained profits). A business uses its assets to generate income which is used to pay off creditors and interest on borrowings (among other things). If the asset base is not large enough, it is possible that insufficient income might be generated to cover all borrowing costs.

It is generally considered risky to have a high proportion of assets funded by debt and a proportion of 0.5:1 (or 50%) or below might be considered acceptable.

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The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law.  IFC does not guarantee the accuracy, reliability or completeness of the content included in this work, or for the conclusions or judgments described herein, and accepts no responsibility or  liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon.

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