Financial Ratio Formula:
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Definition: This calculator computes the financial ratio of assets to liabilities, a key metric for assessing financial health.
Purpose: It helps financial professionals and individuals evaluate the relationship between what is owned (assets) and what is owed (liabilities).
The calculator uses the formula:
Where:
Explanation: The ratio indicates how many times assets cover liabilities. Higher values suggest stronger financial position.
Details: This ratio helps assess solvency, financial stability, and risk management capabilities of individuals or organizations.
Tips: Enter total assets and liabilities in dollars. Both values must be positive numbers.
Q1: What is a good ratio value?
A: Typically, ratios above 1.0 indicate more assets than liabilities. Ideal values vary by industry and context.
Q2: How often should this ratio be calculated?
A: For financial management, calculate quarterly or whenever significant financial changes occur.
Q3: What types of assets and liabilities should be included?
A: Include all liquid and fixed assets, and all short-term and long-term liabilities for comprehensive analysis.
Q4: Can this ratio be negative?
A: No, since both inputs must be positive. Negative values would indicate insolvency (liabilities exceed assets).
Q5: How does this differ from debt-to-equity ratio?
A: This simpler ratio compares total assets to liabilities, while debt-to-equity compares liabilities to owner's equity.