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Debt-to-Capital Ratio

The Debt-to-Capital Ratio is a financial metric that compares a company’s total debt to its total capital (the sum of debt and equity). It provides insight into the company’s financial structure and the proportion of its capital that comes from debt financing. A higher debt-to-capital ratio suggests a company is more reliant on debt to fund its operations, which may increase financial risk.

Example

A company with $5 million in debt and $15 million in total capital (debt + equity) has a debt-to-capital ratio of 33%, meaning one-third of its capital comes from debt.

Key points

The debt-to-capital ratio shows the proportion of a company’s capital that is financed through debt.

A higher ratio indicates greater reliance on debt, which may increase financial risk.

It is used to assess a company’s leverage and financial stability.

Quick Answers to Curious Questions

It is calculated by dividing total debt by total capital (debt + equity).

A high ratio indicates that a company relies heavily on debt financing, which can increase financial risk, especially in times of economic downturns.

It helps investors and analysts understand how a company is financing its operations and the level of financial risk it may face.
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