“How to calculate debt to net worth ratio” instructs individuals on determining their financial health by comparing liabilities to assets. For instance, with $20,000 in debt and $50,000 in assets, the ratio is 0.4, indicating 40% debt coverage by assets.
This ratio is crucial for financial planning, as a low ratio suggests financial stability and a high ratio may indicate overleveraging. Historically, lenders have used this metric to assess creditworthiness.