What is the Debt to Capital Ratio?

The debt-to-capital ratio is a measure of a company’s leverage that looks at total debt compared to total capital (shareholder equity + debt).

This measure of leverage is not a globally accepted accounting practice, therefore it is important for analysts to learn exactly what is being included by the company as their debt and equity in calculating the ratio.

Generally speaking, a higher debt to capital ratio indicates that the company is financing more of its operations and needs through the debt markets versus with equity. Comparing debt-to-capital ratios amongst companies within the same sector or industry can be a useful exercise.