Debt to capital ratio

Debt to capital ratio

The Debt to Capital Ratio (D/C ratio) shows the proportion of a company's debt to its total capital, which consists of the sum of its debt and equity combined. For example, if a company uses $25 debt and $75 in equity, the total capital of the company is $100, and the debt-to-capital ratio would be 25%. Companies can alter this ratio by issuing more shares, buying back shares, issuing additional debt, or retiring debt. The definition of "debt" varies, with most practitioners considering any interest-bearing liability to qualify. Others include all liabilities in the classification, including trade payables and unearned revenues, while still others look at it as more of a capital structure metric, and only include LT debt and its associated currently-due portion. Most important in any ratio analysis however when comparing companies is consistency. All of the data to calculate the ratio can be found on the balance sheet.

The D/C ratio is regularly used to measure a company's capital structure and its financial solvency, and this metric is considered an expression of a company's so-called "leverage", with a higher proportion of debt constituting a higher degree of leverage.

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