Business calculators

Financial Leverage Ratio

Try our easy-to-use financial leverage ratio calculator. Just enter in some basic information about your company's finances and get instant results

Understanding financial leverage

What is the financial leverage ratio? 

The financial leverage ratio is one of several metrics that shows a company’s ability to meet its short-term and long-term debt obligations. Financial leverage refers to borrowing money to buy something for reinvestment. For example, a business might purchase a new piece of manufacturing equipment to increase production speed. This should allow for the production and sale of more units.But businesses can only take on so much debt. There comes the point when a company can become over-leveraged with large loans and interest expenses. That means it has more debt than its current or projected assets can support. The financial leverage ratio is one way to measure how healthy a business’s debt-to-assets relationship is.

What is the financial leverage ratio formula?  

You can calculate a business’s financial leverage ratio by dividing its total assets by its total equity. 

financial leverage = total assets / total equity

To get the total current assets of a company, you’ll need to add all its current and non-current assets. Current assets include cash, accounts receivable, inventory, and more. Non-current assets are more difficult to sell, like real estate.  

total assets = current assets + non-current assetsThe total equity of a company can be found listed on its balance sheet, which includes the company’s income statement and statement of cash flows. It reflects a company’s amount of debt in relation to its assets.

Need payroll? You’re in the right place.

Choose from a variety of plans and add-ons. You won’t pay a cent until you’re ready to run payroll.

Common financial leverage questions

Get your team
working with Gusto.