What is Debt Ratio?
Debt Ratio is a financial ratio used to measure a company’s performance, efficiency, or financial health. It compares two or more figures from the financial statements to give analysts, lenders, and managers a quick view of how the business is operating.
How It Works
- Compute Debt Ratio using a defined formula based on figures from the income statement or balance sheet.
- Compare the result against industry benchmarks and prior periods.
- Use the ratio to flag trends, risks, or opportunities for management action.
- Disclose key ratios in management reports and lender communications.
- Track the ratio over multiple periods to detect direction of travel.
Saudi Context
Under Saudi accounting practice, Debt Ratio is reported in line with IFRS as adopted by SOCPA. ZATCA-registered companies must keep supporting documentation and reflect Debt Ratio consistently in their VAT returns, zakat declarations, and Annual Financial Statements. Saudi Vision 2030 compliance and CMA disclosure rules add further reporting layers for listed firms.
Example
A Riyadh-based trading company applies Debt Ratio in its month-end close. The accounting team computes the figure using actual transactional data from Qoyod, compares it against the prior period and budget, and includes a narrative in the monthly management report so leadership can act on the result.