What this calculator does
Debt-to-capital expresses leverage as a percentage of total funding rather than as a ratio against equity. It is easier to read than debt-to-equity because it is bounded: it runs from zero to 100 per cent and cannot run away.
That boundedness is why lenders and rating agencies often prefer it. A debt-to-equity ratio of 2.33 is hard to picture; the same company at 70.0 per cent debt-to-capital is immediately clear.
The formula
Divide interest-bearing debt by the sum of that debt and shareholders' equity. The result is the proportion of permanent capital that is borrowed.
| Term | Meaning |
|---|---|
| Total capital | Interest-bearing debt plus shareholders' equity, the permanent funding base. |
| Debt-to-capital | Debt as a percentage of total capital, always between 0 and 100. |
| Interest-bearing debt | Borrowings that carry interest, excluding trade payables and other operating liabilities. |
The inputs explained
| Field | What to enter |
|---|---|
| Interest-bearing debt ($) | Interest-bearing debt, short and long term. Do not include trade payables. |
| Shareholders’ equity ($) | Total shareholders' equity from the balance sheet. |
When to use it
Reporting against a loan covenant
Many facility agreements set a maximum debt-to-capital percentage.
Comparing capital structures
The bounded scale makes companies easier to rank than debt-to-equity does.
Tracking a deleveraging plan
The percentage moving down over time is a clear measure of progress.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does the funding mix read as a percentage?
Three levels of debt against a fixed equity base.
| Interest-bearing debt | Debt-to-capital ratio | Total capital |
|---|---|---|
| $200k | 25.0% | $800,000.00 |
| $400k | 40.0% | $1,000,000.00 |
| $700k | 53.8% | $1,300,000.00 |
Questions
How does this relate to debt-to-equity?
They contain the same information in different forms. A debt-to-equity ratio of 1 equals a debt-to-capital ratio of 50 per cent, and a ratio of 2.33 equals about 70 per cent. The percentage form is simply easier to read at high leverage.
What should be included in debt?
Interest-bearing borrowings: loans, bonds, overdrafts and, under current standards, lease liabilities. Trade payables and accruals are operating liabilities rather than funding, so they are excluded.
What is a typical level?
Broadly 30 to 50 per cent is common for established companies, but it varies hugely. Utilities and property businesses run far higher on the strength of stable cash flows; early-stage companies often run at zero.
Should market or book equity be used?
Book value is the convention for covenant testing, since that is what the accounts report. Market value gives a better sense of economic leverage but moves daily, which makes it awkward as a test.
For the fuller set of leverage measures, see the leverage ratios calculator. For the cost of that capital mix, see the WACC calculator.