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Debt to Capital Formula:
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The Debt to Capital ratio measures the proportion of debt in a company's capital structure. It indicates how much of a company's operations are financed by debt versus equity, providing insights into financial leverage and risk.
The calculator uses the Debt to Capital formula:
Where:
Explanation: The ratio ranges from 0 to 1, where 0 indicates no debt financing and 1 indicates all debt financing (no equity).
Details: This ratio is crucial for assessing a company's financial risk, capital structure efficiency, and ability to meet debt obligations. It helps investors and creditors evaluate the company's leverage position and financial stability.
Tips: Enter Total Debt and Total Equity in USD. Both values must be non-negative, and their sum must be greater than zero. The result is expressed as a dimensionless ratio.
Q1: What is a good Debt to Capital ratio?
A: Generally, ratios below 0.5 are considered conservative, while ratios above 0.7 may indicate high financial risk. Ideal ratios vary by industry.
Q2: How does Debt to Capital differ from Debt to Equity?
A: Debt to Capital compares debt to total capital (debt + equity), while Debt to Equity compares debt directly to equity. Both measure leverage but from different perspectives.
Q3: What types of debt are included in Total Debt?
A: Total Debt includes all interest-bearing obligations such as bonds, loans, mortgages, and other long-term and short-term debt.
Q4: Can Debt to Capital ratio exceed 1?
A: No, the ratio cannot exceed 1 since it represents debt as a proportion of total capital. Values range from 0 to 1.
Q5: How often should this ratio be calculated?
A: It should be calculated quarterly with financial statements to monitor changes in capital structure and financial risk over time.