Leverage Ratio Calculator

Formula

The formula to calculate the Leverage Ratio (LR) is:

\[ \text{LR} = \frac{\text{D}}{\text{AV}} \]

Where:

$\text{LR}$ is the leverage ratio ($/$)
$\text{D}$ is the total amount of debt ($)
$\text{AV}$ is the total value of assets, capital, or equity ($)

What is Leverage Ratio?

The leverage ratio is a measure of a company's or individual's financial leverage, calculated by dividing the total amount of debt by the total value of assets, capital, or equity. It indicates the proportion of debt used to finance assets and is an important metric for assessing financial risk. A higher leverage ratio suggests higher financial risk due to the greater use of debt in the capital structure.

Example Calculation

Let's assume the following values:

Total Amount of Debt (D) = $200,000
Total Value of Assets (AV) = $500,000

Using the formula:

\[ \text{LR} = \frac{200,000}{500,000} = 0.40 \]

The Leverage Ratio (LR) is 0.40.