Definition: A leverage measure comparing total liabilities with owners' equity or net worth, using the definitions stated in the analysis.
Example
Total liabilities of $300,000 divided by net worth of $150,000 produce a ratio of 2:1.
Keep the distinction clear
Do not substitute total assets for net worth. A high ratio indicates greater debt relative to equity; a zero or negative equity amount complicates interpretation.
Related terms
Liabilities · Equity · Leverage
Keep studying
References: FREC Course II syllabus, Session 9
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