# How do I calculate bad debt ratio?

Category:
business and finance
debt factoring and invoice discounting

The basic method for

**calculating**the percentage of**bad debt**is quite simple. Divide the amount of**bad debt**by the total accounts receivable for a period, and multiply by 100. There are two main methods companies can use to**calculate**their**bad debts**.

Keeping this in view, what is a bad debt ratio?

From a pure risk perspective, **debt ratios** of 0.4 or lower are considered better, while a **debt ratio** of 0.6 or higher makes it more difficult to borrow money. While a low **debt ratio** suggests greater creditworthiness, there is also risk associated with a company carrying too little **debt**.

**Debt ratio**is a solvency

**ratio**that measures a firm's total liabilities as a percentage of its total assets. In a sense, the

**debt ratio**shows a company's ability to pay off its liabilities with its assets. In other words, this shows how many assets the company must sell in order to pay off all of its liabilities.

Besides, how do you calculate long term debt ratio?

**Long-Term Debt Ratio – a ratio, measuring the percentage of company's total assets financed with long-term debt.**

- Formula(s): Long-Term Debt Ratio = Long-Term Debt ÷ Total Assets.
- Example: Long-Term Debt Ratio (Year 1) = 132 ÷ 656= 0,20.
- Conclusion:

**Ratio Formula**. When we compare the relationship between two numbers dealing with a kind, then we use the **ratio formula**. It is denoted as a separation between the number with a colon (:). Sometimes a division sign is also used to express **ratios**.