So you just heard the term “debt to asset ratio” thrown around by that pedantic guy at a cocktail party and now you’re surreptitiously looking up the term on your phone so you don’t look dumb.
(And maybe you also want to be able to use the term yourself.)
Here’s what debt to asset ratio means:
When you’re a business (i.e. you have your own hustle or side hustle), your debt to asset ratio represents the total amount of debt you owe compared to your total amount of assets.
This determines how much lenders will be willing to give you AND helps you be aware of how much you owe to creditors.
If you’re an individual, the debt to asset ratio won’t be as relevant to you…but your debt to INCOME ratio will be. That’s the number representing the total amount of debt you owe compared to your income.
Mortgage lenders, bank loans, and anyone giving you credit will take a look at your debt to asset/income ratio in order to determine how much they’re willing to lend to you.
Your debt to asset ratio (or debt to income ratio) could mean the difference between securing a loan for your business or home, and not getting a single dime from a lender.
To help you get a better understanding of it, let’s break down what debt to asset ratio might look like in real life.
Now, let’s learn how to calculate ratio in Excel.
Calculate the ratio of products between two shops
Step 1: Create a table same as like above picture. Since this table is showing a number of products in the store of two shops. We are going to calculate the ratio of each product between these 2 shops. Column D is for calculating GCD and Column E is for a ratio.
What is GCD?
The GCD Function is used to calculate the greatest common denominator between two or more values. We can use GCD to then create our ratios. The GCD Function is extremely easy to use. Simply type =GCD( followed by the numbers that you wish to find the greatest common divisor of (separated by commas).
Once you understand how GCD works you can use the function to find your ratios by dividing each of the two numbers by their GCD and separating the answers with a colon “:”. Hence, now we are ready on how to calculate ratio.
First, we need to calculate GCD in column D then we will calculate ratio in column E using GCD.
Step 2: In cell D2 type this formula to calculate GCD between B2 and C2. =GCD(B2,C2)
Step 3: Now we have got GCD result 5 for cell B2 and C2. So, now copy this formula into other cells of the column using Fill Handle dragging below to other cells of column D. Step 4: Now we have got all GCD values of all rows in column D. Now let’s Calculate ratio.
Formula: = Num1/GCD(Num1, Num2) & “:” & Num2/GCD(Num1, Num2)
This complicated formula is basically saying,
= (Number of times Number 1 contains GCD) & “:” & (Number of times Number 2 contains GCD)
In our example the formula would be written as:
=B2/GCD(B2,C2) & ”:” & C2/GCD(B2,C2)
=B2/D2 &”:”& C2/D2
(Because We already calculated GCD (B2,C2) in cell D2.
So, we can say D2= GCD(B2,C2))
Results: =100/5 & “:” & 15/5 = 20 & “:” & 3 = 20:3
Step 5: In cell, E2 type this formula to calculate ratio:
Press ENTER. Now we have got the ratio between 100 and 15 as 20:3 in cell E2.
Step 6: Copy the ratio formula in another cell of column E. Finally, we have got the ratio of the whole table. So, we have successfully learned how to calculate ratio in excel.
Also Read: How to use VLOOKUP Excel Formula | How to do autofiller in excel using VBA