Debt-to-capital ratio
Principles of Finance glossary · Cost of Capital & Capital Structure
Definition
Total debt divided by (total debt + total equity); a capital-structure leverage measure constrained to the interval [0, 1], unlike debt-to-equity.
Debt-to-capital ratio in plain English
Imagine a company buys everything it owns using two kinds of money: money it borrowed (debt) and money the owners put in or earned (equity). The debt-to-capital ratio asks, "Of all that money, what slice came from borrowing?" You divide the borrowed money by the total of both, so the answer always lands between 0 and 1 (or 0% to 100%) — a clean, easy-to-read gauge of how much a company leans on loans. A ratio of 0.4 means 40 cents of every dollar funding the business is borrowed. People care because more borrowing means bigger required payments, which is riskier if business slows down.
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