Measure your company's financial leverage by calculating the debt-to-capital ratio. Enter total debt and shareholders' equity to compute the ratio instantly.
Interest-bearing short- and long-term debt
Book equity or market value of equity
Debt-to-Capital Ratio:
40.00%
Total Capital:
$500,000
Interpretation:
Moderate leverage
The debt-to-capital ratio compares a company’s total debt to its total capital. In other words, this ratio shows the percentage of the capital structure that comes from creditors. A high ratio indicates a business has more risk in its capital structure. As a result, debt to capital ratio helps lenders and investors gauge the strength of a company’s balance sheet.
Debt-to-Capital = Total Debt / (Total Debt + Shareholders' Equity)
To calculate the debt-to-capital ratio, use the following formula:
Debt-to-Capital Ratio = Total Debt ÷ (Total Debt + Shareholders' Equity)
ESay Total Debt = $200,000 and Shareholders’ Equity = $300,000. Therefore, Total Capital = $500,000
The industry and business model will determine the ideal or normal debt to capital ratio. For example, capital-intensive companies (utilities, telecom, etc.) have higher operating leverage and sustain higher debt. On the other hand, cyclical and early-stage companies may target a lower capital structure to be less risky. As a rule of thumb, you should compare against your industry peers and observe trends over time, not just for a single reporting period.
Total debt for this ratio and calculator refers to interest-bearing short-term and long-term borrowings. This includes bank loans, bonds, notes payable, and lease liabilities where applicable.
For debt and equity to be comparable, use book values if you have book debt and balance sheet data or use market equity for valuation-driven capital structure analysis.
A lower leverage ratio means less financial risk but possibly less access to growth when debt is cheap. The optimal capital structure depends on the industry, the stability of cash flows, and the weighted average cost of capital.
Equity below zero means your ratio will be over 100%, which indicates distress. Negative shareholders’ equity usually means accumulated losses, write-downs, or over-leverage.
Pay down debt, refinance costly obligations, retain earnings to boost equity growth, and raise new equity capital if needed.
