Debt-to-Capital Ratio

Debt-to-Capital Ratio

The debt-to-capital ratio is a leverage ratio that companies and investors use to analyse the riskiness of a company. It is calculated by dividing a company’s total short-term and long-term interest-bearing debt (which means it excludes items like accounts payable) by the sum of total interest-bearing debt plus shareholders’ equity. Companies with high debt-to-capital ratios have smaller buffers to cover losses or revenue declines and still be able to service the debt. Companies with low debt-to-capital ratios are financed by a relatively larger proportion of equity, and burdened by lower finance costs.

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