Thesis: Total Debt to Total Asset Ratio

Sample Thesis Paper

The Total Debt to Total Asset ratio, as obvious from the name itself, is a calculation of the ratio of Total Debt to Total Assets. The total debt, which includes both short term and long term liabilities, is divided by the total assets figure which includes short term and long term assets. The resulting figure is the Total Debt to Total Asset Ratio. This ratio is interpreted in the opposite manner as compared to the preceding ratios. The higher the ratio, the riskier the firm is and the weaker the ownership position. It is better to have a lower Total Debt to Total Asset Ratio for the firm so that it is less levered and less risky for investors.

Otherwise, it will have to generate higher returns to compensate for the added risk. Multinational firms and other large companies can increase their debt proportion in the capital structure of their respective firms and still be relatively safer as this additional debt can easily be managed due to their size and stature. The Total Debt which is a part of this ratio also consists of short term debts which are debts incurred for daily affairs and activities. These operational debts are not actual debts in the true meaning of the phrase and compound some error into finding the risk profile that is the actual purpose of calculating this ratio (Loth 2009).

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