Loading the player...

DEFINITION of 'Debt Load'

Debt load refers to the total amount of debt that a company is carrying on its books. This can be found on the company's balance sheet.

BREAKING DOWN 'Debt Load'

The best way to think about the debt load a company is carrying is in relation to its assets or equity. In absolute terms, a large company is likely to be carrying a large amount of debt. But relative to its assets or equity, the debt may be small.

A wide range of ratios are useful in determining whether a company's debt load is too large. The simplest of these divides a company's total debt by the total assets, giving the debt ratio. A low debt ratio is usually a sign of a healthy company. But what is considered low? That depends on the size of the company and its industry. To determine whether a company's debt load is too large or about right, compare it with similarly sized companies in the same industry.

Another useful ratio is the debt to equity ratio. To calculate this, divide the total debt by the total equity. Again, whether this figure is too large or about right depends on the size of the company and the industry.

A company's debt load may also be assessed in relation to its income. In this case, the debt service coverage ratio, which compares a company's operating income, that is, income generated by normal operation, to its debt payments, is useful. The interest coverage ratio, which compares just interest payments to operating income, is also helpful.

RELATED TERMS
  1. Debt Service

    Debt service is the cash that is required for a particular time ...
  2. Long-Term Debt to Capitalization ...

    The long-term debt to capitalization ratio, calculated by dividing ...
  3. Net Debt

    Net debt is a metric that shows a company's overall debt situation ...
  4. Total Debt to Total Assets

    Total debt to total assets is a leverage ratio that defines the ...
  5. Asset Coverage Ratio

    The asset coverage ratio determines a company's ability to cover ...
  6. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
Related Articles
  1. Investing

    Debt Ratio

    The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ...
  2. Investing

    Evaluating a Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  3. Investing

    Target Corp: WACC Analysis (TGT)

    Learn about the importance of capital structure when making investment decisions, and how Target's capital structure compares against the rest of the industry.
  4. Investing

    Analyzing Verizon's Debt Ratios in 2016 (VZ)

    Analyze Verizon's key debt ratios, and understand how the company has been able to expand in recent years by safely increasing its debt load.
  5. Investing

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  6. Insights

    How Debt Limits A Country's Options

    While debt is fundamentally necessary to the operation of a national government, it can also be limiting and dangerous.
  7. Personal Finance

    Best 5 Money-Saving Tips to Get out of Debt

    Understand the different types of debt and the reasons why people get into debt. Learn about five tips to follow to get out of debt.
  8. Investing

    Analyzing Apple's Debt Ratios in 2016 (AAPL)

    Discover detailed analyses of Apple's four debt ratios over quarterly and annual periods between 2014 and 2015, and learn why it is financially stable.
  9. Personal Finance

    Digging Out Of Personal Debt

    Good intentions can put consumers in even more personal debt.
RELATED FAQS
  1. Why would a company use a form of long-term debt to capitalize operations versus ...

    Learn about the different consequences of using long-term debt versus equity to raise capital for business activity, and ... Read Answer >>
  2. How do I calculate the debt to equity ratio in Excel?

    Understand the basics of the debt to equity ratio, how it is interpreted as a measure of financial stability, and how it ... Read Answer >>
  3. What is the difference between subordinated debt and senior debt?

    Understand the difference between subordinated debt and senior debt. Learn what a company is required to do in case of bankruptcy. Read Answer >>
Trading Center