# Debt-to-Capital Ratio

Debt-to-capital ratio is a solvency ratio that measures the proportion of interest-bearing debt to the sum of interest-bearing debt and shareholders' equity.

Interest-bearing debt includes bonds payable, bank loans, notes payable, etc. Non-interest bearing debt includes trade payable, accrued expenses, etc.

The debt-to-capital ratio is a refinement of the debt-to-assets ratio. It measures how much of the capital employed (i.e. the resources on which the company pays a cost) is debt. Higher debt included in the capital employed means higher risk of insolvency.

## Formula

 Debt-to-Capital Ratio = Interest-bearing Debt Interest-bearing Debt + Shareholders' Equity

## Example

Calculate debt-to-capital and debt-to-assets ratios for Intel Corporation (NYSE: INTC). Relevant information for the company for financial year 2012 is as follows:

USD in million
Short-term debt312
Accounts payable3,023
Accrued expenses2,972
Deferred income1,932
Other accrued liabilities3,644
Long-term debt13,136
Long-term deferred tax liabilities3,412
Other long-term liabilities3,702
Total liabilities33,148
Total shareholders' equity51,203
Total assets84,351

Solution

Of all the liabilities listed on the INTC balance sheet, short-term debt and long-term debt are interest-based. The rest are non-interest. Hence, they are excluded from calculation of debt-to-capital ratio.

USD in million
Short-term debt312
Long-term debt13,136
Total interest-bearing debt13,448
Total shareholders' equity51,203
Capital employed (interest-based debt + equity)64,651

Total liabilities33,148
Total assets84,351
 Debt-to-capital Ratio = \$13,448 million = 0.208 \$13,448 million + \$51,203 million
 Debt-to-assets Ratio = \$13,448 million = 0.393 \$84,351 million