What is a good leverage ratio for a company?

A good leverage ratio for a company is less than 1. Leverage ratios are used to represent how much of a company's operations or assets are financed with borrowed money. A low leverage ratio is obviously better, because this means your company is paying for their assets with money they are making instead of borrowed money.

• Low Leverage Ratio - company is financing assets with only equity capital and no debt, which is ideal.
• High Leverage Ratio - company is using a fair amount of debt to finance its assets, which is not ideal.

  There are a variety of financial leverage ratio formulas that a company can use to determine how their business is doing financially. These include:

• Debt to assets ratio = Total Debt / Total Assets
• Debt to equity ratio = Total Debt / Total Equity
• Debt to capital ratio = Total Debt / (Total Debt + Total Equity)

  For example, let's say your company has $30,000 in assets, $12,000 in debt, and $20,000 in equity. Use these totals to find multiple leverage ratios for your business, as follows:

• Debt to assets = Debt / Assets - $12,000 / $30,000 = 0.40
• Debt to equity = Debt / Equity - $12,000 / $20,000 = 0.60
• Debt to capital = Debt / Capital - $12,000 / ($12,000 + $20,000) = 0.375