The Debt-to-Capital Ratio is a financial metric that measures a company's financial leverage. It is calculated by dividing a company's total debt by its total capital, which is the sum of the debt and equity. High D/C → Company relies more heavily on debt financing, which can lower the overall cost of capital (since debt is cheaper than equity) but increases financial risk.Low D/C → Company is conservatively financed, relying more on equity than debt. This reduces financial risk but typically results in a higher overall cost of capital (since equity is more expensive). Equity Used: Book vs. Market: Book Equity is used in credit analysis, bank covenants, and rating agency metrics, because it reflects the accounting capital available to absorb losses. Market Equity is used in valuation and WACC calculations, because it reflects investors’ current perception of the company’s equity value and the true cost of capital.
Learn Debt-to-Capital Ratio with interactive examples and practice exercises in our Performance Metrics module.
This interactive learning module helps you understand Debt-to-Capital Ratio through hands-on practice and real-world examples.