DebttoCapital Ratio Calculator
Table of contents
What is the debt to capital ratio?What is a good debttocapital ratio?Debttocapital ratio formulaHow to calculate debttocapital ratio?Debttocapital ratio: Real exampleFAQsThis debttocapital ratio calculator is an excellent tool that calculates how much leveraged a company is relative to its total capital. In this article, we will cover what is the debttocapital ratio, how to find it, and what is the debttocapital ratio formula. We will also explore a real example of how to calculate the debttocapital ratio. Keep reading!
What is the debt to capital ratio?
The debttocapital ratio is an indicator that measures the contribution of debt to a company's capital that is used to fund its operations. It compares all debt that generates interest to the total capital (interestbearing debt plus equity). Consequently, a high value indicates high leverage, whereas a low value indicates operations to be founded by shareholders' equity.
On a corporate level, companies can go to the stock exchange to sell a percentage of their ownership in return for cash. This is known as equity financing. However, they have a second way, and it is called debt.
The main difference between the two is that you have to pay a loan amortization when you get debt, which is spread between the principal and its interest. With the equity financing option, no payment is obligatory.
The debttocapital ratio is a way to link both ways of financing and assesses the contribution of each one into the business structure.
What is a good debttocapital ratio?
From the above explanation, we understand we have two extreme scenarios:

The company has a high contribution from the equity, in which case shareholder's ownership might have been diluted severely.

The company has a high contribution from debt, in which case the interest to be paid might be too high for the company to be profitable.
Besides, such a ratio that includes debt and equity is very dependent on the industry in which the company operates. Mining companies that use debt for buying heavy machinery will not have a comparable debttocapital ratio with other industries like cloud computing.
Thus, a good debttocapital ratio only becomes acceptable if the company produces enough earnings to cover the interest that its debt generates and keeps shareholders happy. Yes, a company can have a good debttocapital ratio and still not manage its debt properly.
The former can be analyzed with the interest coverage ratio calculator, while the latter can be analyzed with the dividend payout ratio calculator.
As a suggestion, you do not want a higher than 0.7 debttototalcapital ratio because it indicates that your company is mainly financed by debt. After checking the debttocapital ratio formula, we will return to these results.
Debttocapital ratio formula
Perhaps while reading, you asked yourself, all great, Arturo but How to calculate the debttoequity ratio?. Well, let's explain it.
To calculate the debttoequity ratio, we need two parameters:
 Interestbearing debt; and
 Shareholders' equity includes preferred, common, and minority interests.
To get the debttoequity ratio, we need to divide interestbearing debt by total capital, which is both all interestbearing debt and equity added up together. The whole formula is as follows:
debttocapital ratio = interestbearing debt / (interestbearing debt + shareholders' equity)
Shareholders' equity shall include mezzanine equity, preferred stock, and minority interest.
As mentioned above, a high debttocapital ratio would indicate high leverage. However, suppose the company generates earnings that cover the interest comfortably. There should not be any problem with having a debttocapital ratio of over 0.7 in that case.
How to calculate debttocapital ratio?
To calculate the debttocapital ratio, perform the following steps:

Go to the balance sheet of the company you are interested in and check the liabilities section.

Select only the short/longterm liabilities which generate interest. Examples of these accounts are bonds, capital lease obligations, bank overdrafts, and the current portion of the longterm debt, among any item that bears interest.

Sum them all. Now, you have interestbearing liability.

Go to the equity section and extract the shareholder's equity. It must include minority interest and preferred stock.

Use the debttocapital ratio formula indicated above.
Debttocapital ratio: Real example
We will discuss how to find the debttocapital ratio of the wellknown public company
. From their , we get: Current portion of longterm debt: 27 MUSD (million US dollars).
 Operating lease liabilities, current: 175 MUSD.
 Longterm debt, net of current portion: 7,560 MUSD.
 Operating lease liabilities, noncurrent: 1,544 MUSD.
Thus:
Interestbearing debt: 9,306 MUSD.
Besides:
 Uber shareholders' equity: 12,266 MUSD.
 Mezzanine equity (Redeemable noncontrolling interest): 787 MUSD.
 Nonredeemable noncontrolling interest: 701 MUSD.
Thus:
Shareholder's equity including noncontrolling interest and minority interest: 13,754 MUSD.
Then, if we use our cool debttocapital ratio calculator, we get the following:
Debttocapital ratio = 0.4
That's it, and we've found the debttototal capital ratio of UBER! There are other debt analysis ratios that can give a more complete picture of the financial situation. Check the following tools:
The current result indicates that UBER gets 40% of its capital from interestbearing debt.
As mentioned before, this is a static picture because it only includes balance sheet information. To assess whether or not the company goes in the bankruptcy direction, investors have to complement their analysis with the interest coverage ratio and the revenue growth.
In conclusion, the debttocapital ratio calculator is an insightful tool. Still, it could be way more powerful if it is combined with our vast set of financial calculators.
What is a good debt to capital ratio?
An excellent debttocapital ratio is under 0.7. However, this ratio only indicates where the capital comes from, either from debt or equity. Thus, although a high debttocapital ratio shows a considerably leveraged company, this might not be a problem if the company enjoys an interest coverage ratio over 3.
How do I calculate debttocapital ratio?
To calculate debt to capital ratio, follow these steps:

Go to the balance sheet of the company and check the liabilities section.

Select only the liabilities (short and long) which generate interest. Examples of these are short/longterm liabilities, bonds, capital lease obligations, bank overdrafts, and the current portion of the longterm DEBT, among any item that bears interest. Sum them all. Now, you have the interestbearing liability.

Go to the equity section and extract the shareholder's equity. It must include minority interest and preferred stock.

Divide the interestbearing liability by the total shareholder's equity, the add the interestbearing liability to get the debt to capital ratio.
How to find debttocapital ratio?
Most of the time, you only require the balance sheet of a company. Here, you would need to go to the liabilities section to find out the components of the debttocapital ratio. However, sometimes, to find all the interestbearing debt, you have to go to the financial statement notes. Operating leases and financial leases might be there and shall be considered if they generate interest.
What is a bad debttocapital ratio?
A really bad debttocapital ratio is one from a company that cannot pay its interest with its earnings. A high debttocapital ratio might be considered risky in the case of a sudden decrease in operating cash flows. However, suppose the interest is usually well covered by earnings. In that case, a company could run with a high debttocapital ratio indefinitely.