Debttocapital

Debttocapital, often written as debt-to-capital or debt-to-capitalization, is a financial ratio that measures a company's leverage by comparing its debt to its total capital. It offers a concise view of how a firm finances its operations through debt versus equity.

Calculation: The ratio is typically calculated as total debt divided by (total debt plus shareholders’ equity). Some definitions use gross debt, including short- and long-term borrowings, while others use net debt (debt minus cash and cash equivalents). Variants may use long-term debt only in the numerator.

Interpretation and uses: A higher debt-to-capital ratio indicates greater leverage and potentially higher financial risk, particularly in periods of rising interest rates or economic downturns. The metric is used by lenders and investors as a proxy for balance-sheet risk and capital-structure efficiency and is commonly compared across peers or tracked over time.

Limitations: The ratio does not measure profitability or cash flow and can be distorted by accounting practices, such as off-balance-sheet liabilities or differences in debt definitions. It should be considered with other indicators like debt-to-equity, interest coverage, and free cash flow, and contextualized by industry norms.

See also: debt-to-equity ratio; debt-to-assets; capitalization; capital structure.