Debt to capital asks a simple question: of all the long-term money the company runs on, how much was borrowed rather than put in by owners? It is one division. The difficulty is that the answer is quoted as two different ratios by different sources, and the two are not interchangeable.
Someone reading a balance sheet or a credit report has total debt and total equity and wants the leverage ratio, and needs to know which of the two commonly quoted ratios they are looking at.
A company with $400,000 of debt and $600,000 of equity has $1,000,000 of capital. Debt to capital is 40% and equity to capital is 60%. Debt to equity is 0.667 — the debt divided by the equity alone.
Move the debt up and the two ratios separate quickly. At $500,000 of debt and $500,000 of equity the debt-to-capital ratio is 50% and debt to equity is 1.0. At $800,000 and $200,000 it is 80% and 4.0. The first ratio went from 50% to 80%, an increase of 30 points; the second went from 1.0 to 4.0, which is four times. They are the same two numbers, and a person reading one cannot convert to the other without doing the division.
That is the practical reason to compute both. Credit analysts and rating agencies often quote debt to capital because it is bounded — it can never exceed 100% unless equity is negative — while lenders pricing a facility often quote debt to equity because it is the ratio that appears in a covenant. Reading the wrong one gives a wrong impression of how levered a company is.
The numerator is where most of the disagreement lives. Interest-bearing borrowings are always included: bank loans, bonds, finance leases. Trade payables usually are not, because they are a normal part of operations rather than a financing decision — but a company stretching its suppliers to 120 days is borrowing from them in substance, and some analysts include it.
Operating leases are the case that changed most recently. They used to sit off the balance sheet entirely, which made highly lease-heavy businesses such as airlines and retailers look less levered than they were. Accounting standards now require most of them on the balance sheet, which is why leverage ratios for those industries jumped between reporting periods without anything about the businesses changing.
Pension deficits and contingent liabilities are the other recurring argument. Whether they belong in the numerator depends on whether you are asking how the company is funded or what could go wrong, and those are different questions. The honest position is that the ratio is only comparable between companies computed the same way, and that a quoted ratio without a stated definition is not comparable to anything.
A company that has accumulated losses can carry negative book equity while still owing money. With $1,000,000 of debt and equity of −$200,000, total capital is $800,000 and debt to capital is 125% — over 100%, which is impossible with positive equity and correct here. Debt to equity is −5.0, a number that looks like a mistake and is not.
Ratios above 100% are read as a distress signal rather than as a leverage measure, and they should be: they mean the company owes more than its entire funding base, and the owners' claim has been wiped out. The page reports the flag rather than letting the number sit there unexplained.
At the limit, when debt and equity are both zero, the denominator vanishes and the ratio does not exist. The calculator reports that rather than returning zero, because zero would read as "no debt" — which happens to be true but is not what the ratio is saying, and the two would be indistinguishable on the page.
debt to capital = debt ÷ (debt + equity) debt to equity = debt ÷ equity
Both ratios describe the same two numbers and neither is more correct. What matters is that they do not move together in a way anyone can do in their head: debt to capital of 50% is a debt-to-equity of 1.0, but 80% is 4.0 and 90% is 9.0. The relationship is not linear, and that is the reason a page exists for a single division.
Total capital is $1,000,000, so debt to capital is 40% and equity to capital is 60%. Debt to equity is 0.667. This is a moderately levered company by most standards, and the two ratios agree with each other comfortably — at this level, moving between them in your head is roughly possible.
The same $1,000,000 of capital, funded very differently: debt to capital is 80% and equity to capital is 20%, with debt to equity of 4. Note that the first ratio rose by 40 points from Example 1 while the second rose from 0.667 to 4.0 — six times. The two ratios are describing the same balance sheet and they do not feel like the same increase.
With $1,000,000 of debt and equity of −$200,000, total capital is $800,000 and debt to capital is 125% — over 100%, which is only reachable when equity has been wiped out. Debt to equity is -5 and equity to capital is -25%. Every one of these figures is correct and none of them is a leverage measure any more; they are the arithmetic of a company whose owners' claim has gone.
It depends entirely on the industry. Utilities and telecoms routinely run above 60% because their cash flows are predictable enough to service it; software companies often run near zero because they need no assets to grow. Comparing a ratio across industries says more about the industries than about the companies, and a ratio quoted without a peer group is not a judgement.
The numerator is the same and the denominator differs: debt to capital divides by debt plus equity, while debt to equity divides by equity alone. The first is bounded at 100% when equity is positive and the second is unbounded. 50% debt to capital is 1.0 debt to equity, but 80% is 4.0 — they are not proportional.
Under current accounting standards most operating leases are already on the balance sheet as lease liabilities, so the question is mostly settled for reported figures. Where a lease is still off balance sheet, including it gives a truer picture of the fixed obligations — which is why airlines and retailers often look more levered under a lease-adjusted calculation than in their reported ratios.
Only when equity is negative. With positive equity the denominator is always larger than the numerator, so the ratio is below 100% by construction. Above 100% means accumulated losses have wiped out the owners' claim and the company is funded entirely by creditors plus a deficit, which is a distress signal rather than a leverage measure.
Interest-bearing borrowings — loans, bonds and finance leases. Whether to add trade payables, pension deficits or contingent liabilities depends on the question being asked, and there is no single right answer. What matters for comparison is that every company being compared uses the same definition, because a ratio computed one way is not comparable with a ratio computed another.