Leading Entrepreneurship

The debt to worth ratio measures the relationship of a firm’s debt to its equity capital.

Desired Comparison to Industry Average
Generally, less than or equal to the industry average.

If Quick Ratio is Above Industry Average
Too much risk, leverage is too great. If economy goes bad and sales drop, interest expenses can destroy profits. Often caused by unmanaged growth. The higher the ratio, the greater the risk of being assumed by creditors. A more highly leveraged company has a more limited debt capacity.

If Quick Ratio is Below Industry Average
Firm might be playing it too safe; not enough risk equates with not enough return. There is too much equity in the company and too much debt capacity causing low ROI. A lower ratio generally indicates greater long-term financial safety. A firm with a low debt/worth ratio usually has greater flexibility to borrow in the future.