 |
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:
|
 |
Investopedia explains '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.
|
-
If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios.
Read More »
-
Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
Read More »
-
Learn about the components of the statement of financial position and how they relate to each other.
Read More »
|
|
