What does the Debt to Total Assets Ratio represent?

The Debt to Total Assets Ratio is a financial metric that indicates the proportion of a company's assets that are financed by debt. It is calculated by dividing total liabilities by total assets and then expressing this figure as a percentage. This ratio provides insight into financial leverage and the overall financial health of a company. A higher ratio suggests that a larger portion of the company's assets is funded through borrowing, which may indicate higher financial risk, while a lower ratio suggests more asset funding through equity, potentially indicating lower risk.

This understanding allows stakeholders, including investors and creditors, to assess the level of debt a company carries in relation to its total assets, helping them make informed decisions regarding financing, investment, and risk management. Thus, the correct interpretation of the Debt to Total Assets Ratio aligns perfectly with the formula described in the answer provided.