The term indebtedness refers to the use of other people's funds for financing. Then the company is financed from other sources, not from its own capital. An over-indebted company has a low probability of survival on the market, and it is extremely important that the management of the company attaches importance to the method and amount of borrowing through other sources.
Table 2 shows some of the liquidity indicators, i.e. their calculation method:
| POINTER NAME | NUMERATOR | DENOMINATOR |
| Debt ratio | Total liabilities | Total assets |
| Coefficient of own financing | Principal | Total assets |
| Debt factor | Total liabilities | Net profit + depreciation |
- Debt ratio
The debt ratio shows how much of the property is financed from other sources, long-term or short-term, that is, how much of the property was acquired through borrowing. The higher this coefficient, the higher the risk of investing in the company, i.e. there is a higher probability that the company will not be able to repay the debt incurred. Experience has shown that the upper limit should be 50%. This means that the share of liabilities in total assets should be a maximum of 50%, and thus the share of capital a minimum of 50%.
- Self-financing ratio
The coefficient of own financing shows how much of the assets the company finances from its own sources. It compares the capital and total assets of the company. It is desirable that this indicator be at least 50%, which would mean that the company finances half of its assets from its own funds, while the desired value of this indicator is 1. Companies should not borrow more than the value of the owner's capital.
- Debt factor
The indebtedness factor tentatively reflects the number of years needed to cover existing liabilities if the business continues with the same positive results. The limit measure is 5 years, which means that an entrepreneur who needs more than 5 years to cover his obligations from the profit after taxation and depreciation is over-indebted.
