Debt Burden = Total Bank Liabilities / Total Liabilities
- It shows the percentage of a company’s assets that have been financed by borrowed funds.
- The company’s lenders prefer low levels of total debt burden, because the lower the ratio, the more equity there is to satisfy lenders in the event of the company’s bankruptcy.
Business actions to improve the Ratio
- Increase Total Liabilities, either by
- Increase Share Capital, or by
- Increase Short-Term Liabilities, excluding Bank Borrowing
- Reduce Bank Liabilities, by repayment
