When calculating Debt Ratio, what should be included in the numerator?

The numerator in the Debt Ratio calculation consists of total liabilities, which reflects all obligations a company has, including various forms of debt. This encompasses both current and long-term liabilities, which would include loans, lease obligations, and indeed the proceeds from bonds, representing borrowed funds that the company must repay.

While it might seem logical to consider only specific types of debt, such as bonds payable, or focus solely on certain liabilities, the Debt Ratio is meant to provide a comprehensive view of a company's leverage by measuring the proportion of total assets that are financed through debt. Therefore, including end debt (which covers all obligations) alongside proceeds from bonds captures the overall indebtedness of the firm relevant for assessing financial risk and leverage.

In contrast, only considering end liabilities would omit important components of total debt. Similarly, including only total assets ignores the debt aspect entirely. Limiting the numerator to bonds payable would not provide a complete picture of a company's debt situation. Thus, including both end debt and proceeds from bonds best reflects total liabilities for the Debt Ratio calculation.