Definition of Liability to Asset Ratio
- The liability to asset ratio is also known as the debt to asset ratio.
- The liability to asset ratio shows the percentage of assets that are being funded by debt.
- The higher the ratio is, the more financial risk there is in the company.
What is the Formula for Liability to Asset Ratio?
- The liability to asset ratio can be found by adding up the short term and long term liabilities, dividing them by the total assets, and then multiplying the answer by 100.
[(Short Term Liabilities + Long Term Liabilities) ÷ Total Assets] x 100
Liability to Asset Ratio in Practice
- YFR studio produces music hence requires a lot of equipment which costs a lot of money. YFR’s total assets are worth $5,000,000, and its total liabilities are worth $2,000,000. What is the liability to asset ratio?
- 2,000,000 ÷ 5,000,000 = 0.4
- 40% is the liabilities to asset ratio at YFR