metrics explained

Debt-to-Equity Ratio vs Debt-to-Capital Ratio: What's the Difference?

When it comes to corporate finance, there are a lot of ratios and metrics that can be used to measure a company's financial health. Two of the most common ratios used are the debt-to-equity ratio and the debt-to-capital ratio.

What is the Debt-to-Equity Ratio?

The debt-to-equity ratio, also known as the leverage ratio, is a financial metric used to measure a company's leverage. Leverage is the use of debt to finance a company's assets and operations. The debt-to-equity ratio is calculated by dividing a company's total liabilities by its total shareholder equity.

What is the Debt-to-Capital Ratio?

The debt-to-capital ratio is a financial metric used to measure a company's capital structure. The debt-to-capital ratio is calculated by dividing a company's total debt by its total capital. Total capital includes both debt and equity.

What's the Difference Between the Debt-to-Equity Ratio and the Debt-to-Capital Ratio?

The main difference between the debt-to-equity ratio and the debt-to-capital ratio is that the debt-to-equity ratio only includes debt in the numerator, while the debt-to-capital ratio includes both debt and equity in the numerator.

What are the Implications of a High Debt-to-Equity Ratio?

A high debt-to-equity ratio indicates that a company is highly leveraged. This means that the company is financing its operations with a lot of debt. While this can lead to higher profits if the company's investments are successful, it also increases the company's risk of bankruptcy if the investments don't pan out.

What are the Implications of a High Debt-to-Capital Ratio?

A high debt-to-capital ratio indicates that a company has a high level of debt relative to its capital. This can be a concern for investors because it means that the company may have difficulty meeting its financial obligations if its income decreases.

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