# Total Debt Ratio Formula

Finance / July 24, 2018 / Hana Cannon

Dividends per share and the formula provided may be used by individuals who are evaluating various stocks to invest in and prefer companies who pay dividends. This formula alone does not necessarily provide an overall outlook on a company as some companies retain their earnings for growth instead of paying dividends. A company with a low dividend payout ratio, i.e. a company who pays a smaller percentage of their net income to stockholders, will reinvest their net income which may lead to an increase in the value of the company due to expansion.

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The debt-to-asset ratio, also known simply as the debt ratio, describes how much of a company's assets are financed by borrowed money. Investors consider it, among other factors, to determine the strength of the business, and lenders may base loan interest rates on the ratio. Mathematically, it is a simple calculation, whether you are looking at your own company or researching potential investments.

Earnings Before Interest and Taxes (EBIT) measures the profit a company generates from its operations, making it synonymous with "operating profit." By ignoring tax and interest expenses, it focuses solely on a company's ability to generate earnings from operations, ignoring variables such as the tax burden and capital structure.

Current liabilities are used to determine a company's ability to pay off its short-term obligations as they fall due. Current liabilities are used to evaluate the efficiency and short-term financial stability of a company. So, it is inferred that current liabilities are a measure of a company's level of liquidity.

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