It refers to the ratio between the total liabilities and total assets of an enterprise. The asset-liability ratio reflects how much of the total assets are obtained by borrowing, which can be used to measure the extent to which enterprises protect the interests of creditors in the liquidation process.
Extended data
I. Asset-liability ratio and its calculation formula
Asset-liability ratio is the percentage of total liabilities divided by total assets, that is, the ratio of total liabilities to total assets. The ratio of assets to liabilities reflects the proportion of assets raised by enterprises through loans to total assets, and can also measure the extent to which enterprises protect the interests of creditors in the liquidation process. The calculation formula is as follows:
Asset-liability ratio = (total liabilities/total assets) × 100%
Total liabilities in the formula include not only long-term negative liabilities, but also short-term liabilities. This is because, on the whole, short-term liabilities are always occupied by enterprises for a long time and can be regarded as a part of long-term sources of funds. For example, the detailed accounts payable may be short-term, but enterprises always maintain a relatively stable total accounts payable for a long time. This part of accounts payable can become a part of the long-term source of funds for enterprises. Based on the principle of conservatism, it is appropriate to include short-term debts in the total liabilities used to calculate the asset-liability ratio.
The total assets in the formula are net after deducting accumulated depreciation.
Second, what does it mean to have a high asset-liability ratio?
The high asset-liability ratio shows that the solvency of enterprises is declining and the development ability of enterprises is weakening. Asset-liability ratio refers to the ratio of total liabilities to total assets at the end of the year. High asset-liability ratio corresponds to relatively high financial risks, which may lead to the break of capital chain and the failure to pay debts in time when cash flow is insufficient, thus leading to the bankruptcy of enterprises. High asset-liability ratio will lead to further increase in financing costs. Banks and investors have certain requirements for asset-liability ratio. Asset-liability ratio is a comprehensive index to evaluate a company's negative 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.