Asset-liability ratio, also known as debt operation ratio, is used to measure the ability of enterprises to use the funds provided by creditors to conduct business activities and reflect the safety of creditors' loans. By comparing the total liabilities and total assets of the enterprise, it is reflected in the total assets of the enterprise in the form of debt ratio.
Asset-liability ratio is the percentage of total liabilities divided by total assets at the end of the period, that is, the proportional relationship between total liabilities and total assets. The asset-liability ratio reflects how much of the total assets are financed by borrowing, and can also measure the extent to which enterprises protect the interests of creditors in the liquidation process. Asset-liability ratio reflects the proportion of capital provided by creditors to total capital, also called debt operating ratio. Asset-liability ratio = total liabilities/total assets.
It indicates how much of the company's total assets are raised through debt, which is a comprehensive index to evaluate the company's debt level. At the same time, it is also an index to measure the company's ability to use creditors' funds for business activities, and also reflects the security of creditors' loans.
If the asset-liability ratio reaches 100% or exceeds 100%, the company has no net assets or is insolvent.
Creditor:
From the standpoint of creditors, they are most concerned about the safety of various financing methods and whether the principal and interest can be recovered on schedule. If the capital provided by shareholders only accounts for a small proportion of the total assets of the enterprise, the risks of the enterprise are mainly borne by creditors, which is unfavorable to creditors. Therefore, creditors hope that the lower the asset-liability ratio, the better, the debt repayment of enterprises can be guaranteed, and there will be no great risk in financing enterprises.
Investors:
From the standpoint of investors, investors are concerned about whether the profit rate of all capital exceeds the interest rate of borrowed capital, that is, the interest rate of borrowed funds. If the profit rate of all capital exceeds the interest rate, the profit of investors will increase. If, on the contrary, the profit rate of all capital is lower than the interest rate of borrowed funds, the profit of investors will be reduced, which is unfavorable to investors. Because the excess interest of borrowed capital should be compensated by the share of profits obtained by investors, investors hope that if the profit rate of all capital is higher than the interest of borrowed capital, the higher the asset-liability ratio, the better, and vice versa.
Operator:
From the operator's point of view, if the amount of debt is large and exceeds the psychological endurance of creditors, the enterprise will not be able to raise funds. The greater the amount of money borrowed (not blindly borrowing, of course), the more dynamic the enterprise appears. Therefore, operators hope that the asset-liability ratio is slightly higher, and they can expand production scale, open up markets, enhance the vitality of enterprises and obtain higher profits through lending.