- CFA Exams
- CFA Exam: Level I 2021
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 22. Understanding Balance Sheets
- Subject 5. Uses and Analysis of the Balance Sheet

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**CFA Practice Question**

The total debt ratio is equal to ______.

B. total liabilities divided by stockholders' equity

C. total liabilities divided by total assets

A. long-term debt divided by total capitalization

B. total liabilities divided by stockholders' equity

C. total liabilities divided by total assets

Correct Answer: C

The total debt ratio is equal to total liabilities divided by total assets. It shows the percentage of all assets financed with debt.

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**User Contributed Comments**
9

User |
Comment |
---|---|

kalps |
Debt ratio = Total liabilities / Total Assets - shows percentage of all assets financed with debt |

whoi |
debt ratio = total debt ratio ..... |

DonAnd |
Total Debt Ratio = Total Debt / Total Assets |

aniketcpp |
In another word, Toral debt ratio=1/Current ratio |

johntan1979 |
That is wrong aniketcpp Current ratio measures only current liabilities (debt) and current assets. |

Shaan23 |
How is this right? Total debt ratio = Total D / Total A That would mean total d and total Liabilities is the same thing.... |

leon121 |
i don't believe this. total debt is long-term debt plus notes payable and other types of debt. current liabilities should not be included. but ok. |

ascruggs92 |
Unless we are supposed to consider all liabilities debt (which technically they are but from an B/S perspective they aren't) this answer is wrong. It even says in the notes Total Debt over Total Assets, so I don't know what this crap is. |

dada |
The answer is correct, @ascruggs92. The debt ratio is defined as the ratio of total - long-term and short-term - debt to total assets, expressed as a decimal or percentage. From investopedia |