This ratio shows the extent to which a company relies on debt to finance assets. When calculating this ratio, it is conventional to consider both current and non-current debt against both current and non-current assets. In general, the less a company relies on debt for asset formation, the less risky the company is. Excessive debt can lead to a very heavy interest and principal repayment burden, so most investors find it unfavorable. Using debt rather than equity for finance can be beneficial to the company because of the reduction effect of interest payments on income taxes. Thus, a company considers both risk and tax effects when deciding on an optimal debt ratio. Mathematically, the debt ratio is debt capital divided by total assets.