## Answers the Question

Relatively speaking, how much debt does the company have?

## Calculator for Debt to Capitalization Ratio

## What Is the Debt to Capitalization Ratio?

The debt to capitalization ratio is a non-GAAP measure used to understand a firm's preference for selling shares vs. taking on additional debt.

It is also known as:

- Debt to capital ratio
- D/C ratio

## Why Is it Important?

- All things being equal, a preference for taking on debt will lead to a more financially weakened state. This is because there is an expectation that the debt will have to be paid back.

## Formula(s) to Calculate Debt to Capitalization Ratio

- DEBT TO CAPITALIZATION RATIO = (SHORT TERM DEBT + LONG TERM DEBT) / (SHORT TERM DEBT + LONG TERM DEBT + SHAREHOLDER EQUITY)

## Common Mistakes

- Some practitioners calculate the aggregate debt differently, leading to differing ratios for the same company.
- Companies can manipulate the number of outstanding shares to massage the debt to capitalization ratio.