Question

Gross monthly income = $3,500 After-tax monthly income = $2,870 Total debt = $86,000 Total monthly debt payments = $402 Total assets = $113,000 Based on the information given above, what is the debt ratio?

Answer 1

Debt ratio = 0.76

Step-by-step explanation:

The debt ratio is known as total debt to total asset ratio. The debt ratio suggests that the percentage of assets has been employed with the liabilities. It can be calculated as total debt divided by the total assets.

Formula:

Debt ratio =
`(Total debt)/(total assets)`

Given,

Total debt = $86,000

Total assets = $113,000

Putting the value in the formula,

Debt ratio = $86,000 ÷ $113,000

Debt ratio = 0.76

76% of total assets has been employed through the liabilities.