Debt-To-Capital Ratio


DEFINITION of 'Debt-To-Capital Ratio'

A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt.

Calculated as:

Debt-To-Capital Ratio


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BREAKING DOWN 'Debt-To-Capital Ratio'

Companies can finance their operations through either debt or equity. The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This tells investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk.

Because this is a non-GAAP measure, in practice, there are many variations of this ratio. Therefore, it is important to pay close attention when reading what is or isn't included in the ratio on a company's financial statements.

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  1. What are financial risk ratios and how are they used to measure risk?

    Some of the financial ratios that are most commonly used by investors and analysts to assess a company's financial risk level ... Read Full Answer >>
  2. How does debt-to-capital change when a company issues new shares of stock?

    The debt to capital of a company changes when it issues new shares of stock by decreasing its amount of total debt in relation ... Read Full Answer >>
  3. If a company has a high debt to capital ratio, what else should I look at before ...

    A variety of equity valuation metrics can be utilized to evaluate a company along with the debt to capital ratio to get a ... Read Full Answer >>
  4. How can I use the debt-to-capital ratio to evaluate a stock?

    The debt to capital ratio is a leverage ratio that can be used to evaluate a company's financial soundness and potential ... Read Full Answer >>
  5. Does a high debt to capital ratio make a company a bad investment?

    Even though a company has a high debt to capital ratio, it may not necessarily be a bad investment. Other equity evaluation ... Read Full Answer >>
  6. Can mutual funds use leverage?

    Traditionally, mutual funds have not been considered leveraged financial products. However, a number of new products have ... Read Full Answer >>

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