What is Net Debt to Assessed Valuation?
How Does Net Debt to Assessed Valuation Work?
The formula for net debt to assessed valuation is:
For example, let's assume that County XYZ has $100 million in short-term debt, $400 million in long-term debt and $10 million in cash and cash equivalents. About $250 million of real property, public utilities, and personal property in the county is taxed by the county. According to the formula, County XYZ's net debt to assessed valuation is:
Net Debt to Assessed Valuation = ($100 million + $400 million - $10 million) / $250,000,000 = 1.56
Why Does Net Debt to Assessed Valuation Matter?
The lower the net debt to assessed valuation, the less risky a government's bonds tend to be. A higher ratio may indicate a situation in which the sale of the underlying assets may not be sufficient to pay off the debt.