What would be the effect of increasing total liabilities on the debt ratio?

Increasing total liabilities directly impacts the debt ratio, which is calculated by dividing total liabilities by total assets. When total liabilities rise, assuming total assets remain the same, this ratio becomes larger because the denominator (total assets) is unchanged while the numerator (total liabilities) increases. This increase indicates that a greater proportion of the company's assets are financed through debt, which results in a higher debt ratio. Therefore, the effect of increasing total liabilities is an increase in the debt ratio, highlighting the company's reliance on borrowed funds. Understanding this relationship is crucial for assessing a company's financial leverage and overall risk profile.