Debt-to-Capital Ratio Calculator: How Much Is Debt?

What does a ratio of 40.00% mean?

On the defaults — $400,000 of total debt and $600,000 of total equity — the debt-to-capital ratio is 40.00% (ratio decimal 0.4000), which means 40 cents of every capital dollar is debt. The total capital is $400,000.00 + $600,000.00 = $1,000,000.00, and the ratio is $400,000.00 ÷ $1,000,000.00 = 40.00%. A ratio of 40.00% means the business is funded 40% by borrowing and 60% by its owners — for every $100 of capital, $40 is owed to lenders and $60 belongs to the owners. Whether that is heavy or light depends on the industry and on how steady the earnings are — a 40.00% ratio against steady cash flow is comfortable, and the same 40.00% against shaky earnings is a worry.

Three things about the model are worth stating plainly.

First, the division is $400,000.00 ÷ $1,000,000.00 = 40.00%, and the ratio decimal is 0.4000 — the percent and the decimal are two outputs, never the same number. Second, the meaning is 40 cents of every capital dollar is borrowed — the share of the whole capital structure that is debt, not a multiple of equity and not years of earnings. And third, the ratio is displayed as a percent to two decimals, half-up, and a ratio that displays as 40.00% can sit a hair below or above the displayed figure: $399,999.50 of debt and $600,000 of equity gives 39.999970%, which displays as 40.00%, and $123,456.78 of debt and $234,567.89 of equity gives 34.482758%, which displays as 34.48% — all listed in Accuracy & limitations.

The worked example, line by line

Setup: total debt $400,000, total equity $600,000.

Line 1 — the total capital. $400,000.00 + $600,000.00 = $1,000,000.00.

Line 2 — the ratio. $400,000.00 ÷ $1,000,000.00 = 40.00% (unrounded 40.000000%; ratio decimal 0.4000).

Line 3 — the check. At $600,000 of total debt the ratio is 50.00%; and at $599,999 it is 49.999958% — below 50.00%.

Every branch, checked

Debt $500,000: total debt $500,000.00; total equity $600,000.00; total capital $1,100,000.00; debt-to-capital ratio 45.45% (ratio decimal 0.4545) — With $500,000 of total debt the ratio rises to 45.45% (unrounded 45.454545%).

Debt $300,000: total debt $300,000.00; total equity $600,000.00; total capital $900,000.00; debt-to-capital ratio 33.33% (ratio decimal 0.3333) — With $300,000 of total debt the ratio falls to 33.33% (unrounded 33.333333%).

Equity $400,000: total debt $400,000.00; total equity $400,000.00; total capital $800,000.00; debt-to-capital ratio 50.00% (ratio decimal 0.5000) — With $400,000 of total equity the ratio rises to 50.00%.

Equity $900,000: total debt $400,000.00; total equity $900,000.00; total capital $1,300,000.00; debt-to-capital ratio 30.77% (ratio decimal 0.3077) — With $900,000 of total equity the ratio falls to 30.77% (unrounded 30.769231%).

Debt $600,000: total debt $600,000.00; total equity $600,000.00; total capital $1,200,000.00; debt-to-capital ratio 50.00% (ratio decimal 0.5000) — With $600,000 of total debt the ratio rises to 50.00%.

Equity $200,000: total debt $400,000.00; total equity $200,000.00; total capital $600,000.00; debt-to-capital ratio 66.67% (ratio decimal 0.6667) — With $200,000 of total equity the ratio rises to 66.67% (unrounded 66.666667%).

Debt $200,000: total debt $200,000.00; total equity $600,000.00; total capital $800,000.00; debt-to-capital ratio 25.00% (ratio decimal 0.2500) — With $200,000 of total debt the ratio falls to 25.00%.

Equity $1,400,000: total debt $400,000.00; total equity $1,400,000.00; total capital $1,800,000.00; debt-to-capital ratio 22.22% (ratio decimal 0.2222) — With $1,400,000 of total equity the ratio falls to 22.22% (unrounded 22.222222%).

The reverses, worked backwards

Smallest total debt for the ratio to REACH 50%: At the displayed $600,000 the figures are total debt $600,000.00; total equity $600,000.00; total capital $1,200,000.00; debt-to-capital ratio 50.00% (unrounded 50.000000%) (ratio decimal 0.5000). At $599,999 the ratio is 49.999958% unrounded — below the target, though it displays as 50.00% — so $600,000 is the smallest total debt for the ratio to REACH 50%.

Largest total equity for the ratio to STAY at or above 45%: At the displayed $488,888 the figures are total debt $400,000.00; total equity $488,888.00; total capital $888,888.00; debt-to-capital ratio 45.00% (unrounded 45.000045%) (ratio decimal 0.4500). At $488,889 the ratio is 44.999994% unrounded — below the target — and at $488,887 the ratio is 45.000096% unrounded — above the target — so $488,888 is the largest total equity for the ratio to STAY at or above 45%.

Smallest total debt for the ratio to REACH 60%: At the displayed $900,000 the figures are total debt $900,000.00; total equity $600,000.00; total capital $1,500,000.00; debt-to-capital ratio 60.00% (unrounded 60.000000%) (ratio decimal 0.6000). At $899,999 the ratio is 59.999973% unrounded — below the target, though it displays as 60.00% — so $900,000 is the smallest total debt for the ratio to REACH 60%.

Largest total debt for the ratio to STAY at or below 35%: At the displayed $323,076 the figures are total debt $323,076.00; total equity $600,000.00; total capital $923,076.00; debt-to-capital ratio 35.00% (unrounded 34.999935%) (ratio decimal 0.3500). At $323,077 the ratio is 35.000005% unrounded — above the target, though it displays as 35.00% — so $323,076 is the largest total debt for the ratio to STAY at or below 35%.

Smallest total equity for the ratio to STAY at or below 40%: At the displayed $600,000 the figures are total debt $400,000.00; total equity $600,000.00; total capital $1,000,000.00; debt-to-capital ratio 40.00% (unrounded 40.000000%) (ratio decimal 0.4000). At $599,999 the ratio is 40.000040% unrounded — above the target, though it displays as 40.00% — so $600,000 is the smallest total equity for the ratio to STAY at or below 40%.

Largest total equity for the ratio to STAY at or above 30%: At the displayed $933,333 the figures are total debt $400,000.00; total equity $933,333.00; total capital $1,333,333.00; debt-to-capital ratio 30.00% (unrounded 30.000008%) (ratio decimal 0.3000). At $933,334 the ratio is 29.999985% unrounded — below the target, though it displays as 30.00% — so $933,333 is the largest total equity for the ratio to STAY at or above 30%.

A warning about the neighbours: every neighbour above sits one dollar from the star, and every neighbour ratio is a hair below or above the target even though it displays as the target — a one-dollar move in debt or equity moves the percent by about 0.00004 points, so the displayed two-decimal figure cannot tell the star from its neighbour. The page prints the unrounded six-decimal percent in full so the rounding does not mislead you: 50.000000, 49.999958, 45.000045, 44.999994, 45.000096, 60.000000, 59.999973, 34.999935, 35.000005, 40.000000, 40.000040, 30.000008, 29.999985.

What the defaults assume

The defaults are $400,000 of total debt and $600,000 of total equity — total debt $400,000.00; total equity $600,000.00; total capital $1,000,000.00; debt-to-capital ratio 40.00% (ratio decimal 0.4000). With Debt $500,000, total debt $500,000.00; total equity $600,000.00; total capital $1,100,000.00; debt-to-capital ratio 45.45% (ratio decimal 0.4545). With Debt $300,000, total debt $300,000.00; total equity $600,000.00; total capital $900,000.00; debt-to-capital ratio 33.33% (ratio decimal 0.3333). With Equity $400,000, total debt $400,000.00; total equity $400,000.00; total capital $800,000.00; debt-to-capital ratio 50.00% (ratio decimal 0.5000). With Equity $900,000, total debt $400,000.00; total equity $900,000.00; total capital $1,300,000.00; debt-to-capital ratio 30.77% (ratio decimal 0.3077). With Debt $600,000, total debt $600,000.00; total equity $600,000.00; total capital $1,200,000.00; debt-to-capital ratio 50.00% (ratio decimal 0.5000). With Equity $200,000, total debt $400,000.00; total equity $200,000.00; total capital $600,000.00; debt-to-capital ratio 66.67% (ratio decimal 0.6667). With Debt $200,000, total debt $200,000.00; total equity $600,000.00; total capital $800,000.00; debt-to-capital ratio 25.00% (ratio decimal 0.2500). With Equity $1,400,000, total debt $400,000.00; total equity $1,400,000.00; total capital $1,800,000.00; debt-to-capital ratio 22.22% (ratio decimal 0.2222). With All zero, total debt $0.00; total equity $0.00; total capital $0.00; debt-to-capital ratio undefined — no debt, no equity, and the ratio is undefined. With Debt $800,000, equity $200,000, total debt $800,000.00; total equity $200,000.00; total capital $1,000,000.00; debt-to-capital ratio 80.00% (ratio decimal 0.8000) — four-fifths of the capital is debt. With Fractional inputs (ratio unrounded 39.999970%), total debt $399,999.50; total equity $600,000.00; total capital $999,999.50; debt-to-capital ratio 40.00% (unrounded 39.999970%) (ratio decimal 0.4000) — the ratio displays as 40.00%. With Debt $4,000,000, equity $6,000,000, total debt $4,000,000.00; total equity $6,000,000.00; total capital $10,000,000.00; debt-to-capital ratio 40.00% (ratio decimal 0.4000) — the same ratio at ten times the size. With Equity $0, total debt $400,000.00; total equity $0.00; total capital $400,000.00; debt-to-capital ratio 100.00% (ratio decimal 1.0000) — all debt, a real figure, not undefined. With Debt $0, total debt $0.00; total equity $600,000.00; total capital $600,000.00; debt-to-capital ratio 0.00% (ratio decimal 0.0000) — no debt at all, a real figure, not undefined. With Negative equity, total debt $400,000.00; total equity −$100,000.00; total capital $300,000.00; debt-to-capital ratio 133.33% (unrounded 133.333333%) (ratio decimal 1.3333) — the ratio is above 100%, a real figure. With Small numbers, total debt $50,000.00; total equity $150,000.00; total capital $200,000.00; debt-to-capital ratio 25.00% (ratio decimal 0.2500) — a quarter of the capital is debt. With Fractional inputs (ratio unrounded 34.482758%), total debt $123,456.78; total equity $234,567.89; total capital $358,024.67; debt-to-capital ratio 34.48% (unrounded 34.482758%) (ratio decimal 0.3448) — the ratio displays as 34.48%. With High ratio, total debt $900,000.00; total equity $100,000.00; total capital $1,000,000.00; debt-to-capital ratio 90.00% (ratio decimal 0.9000) — nine-tenths of the capital is debt. With Debt $145,000, equity $435,000, total debt $145,000.00; total equity $435,000.00; total capital $580,000.00; debt-to-capital ratio 25.00% (ratio decimal 0.2500) — a quarter of the capital is debt.

A note on the rounding: the ratio is displayed as a percent to two decimals, half-up. With the fractional inputs the unrounded ratio is 39.999970% — it displays as 40.00% — and with the other fractional inputs it is 34.482758% — it displays as 34.48%. The page prints the unrounded value so the rounding does not mislead you.

Output · formula · meaning

Who uses this

• The founder checking the balance sheet: they learn $400,000 of total debt against $600,000 of total equity is a ratio of 40.00% — and they check the $600,000 reverse to see the debt that pushes the ratio to 50.00%.
• The lender sizing a loan: they learn a ratio of 40.00% means 40 cents of every capital dollar is debt — and they check the $488,888 reverse to see how much equity keeps the ratio at or above 45.00%.
• The investor comparing two companies: they learn the ratio rises when the debt rises or the equity falls — and they check the $900,000 reverse to see the debt that pushes the ratio to 60.00%.
• The student learning leverage ratios: they learn the ratio is the total debt divided by the total capital — and they check the $933,333 reverse to see how much equity keeps the ratio at or above 30.00%.

Accuracy & limitations

The math is first-principles: the debt-to-capital ratio is the total debt divided by the total capital (total debt + total equity) — all in dollars, the ratio displayed as a percent to two decimals half-up, and as a ratio decimal to four decimals. There IS division in this calculator — at $0 of total debt and $0 of total equity the ratio is UNDEFINED, division by zero, no capital to divide by — the calculator shows “ratio undefined” with a note, never hides it. The ratio is also undefined when total capital is $0 or negative for any other reason, for example $400,000 of debt against −$400,000 of equity. At $0 of total debt the ratio is 0.00% — a real figure, not undefined — and at $0 of total equity the ratio is 100.00% — all debt, a real figure, not undefined. At negative total equity the ratio is above 100%: $400,000 of debt against −$100,000 of equity gives 133.33% (unrounded 133.333333%) — a real figure, shown with the U+2212 minus sign. Negative total debt is NOT meaningful — debt is an amount owed, never negative — say so plainly and do not treat a negative debt figure as a real case. With the fractional inputs the unrounded ratio is 39.999970% — it displays as 40.00% — and with the other fractional inputs it is 34.482758% — it displays as 34.48%. What the model cannot do is say whether 40.00% is a good ratio: the ratio says nothing about what the debt costs — a 40.00% ratio at cheap rates is comfortable and the same 40.00% at punishing rates is a burden. It also says nothing about when the debt falls due — the ratio lumps short-term and long-term borrowing into one number. Use it to see what share of the capital is borrowed — then check the debt-to-equity ratio, the debt-to-EBITDA ratio and the debt service coverage ratio before you decide the leverage pays.

Frequently asked questions