Question

Debt management ratios measure the extent to which a firm uses financial leverage and the degree of safety afforded to creditors . They include the: (1) Debt-to-capital ratio, (2) Times interest earned ratio (TIE), and (3) EBITDA coverage ratio. The first ratio analyzes debt by looking at the firm's balance sheet , while the last two ratios analyze debt by looking at the firm's income statement . The debt-to-capital ratio measures the percentage of funds provided by -Select- . Its equation is:

Answer 1

Provided by total capital, which is equal to interest bearing debt in favor of the company, plus stockholder's equity like preferred stock and common stock.

The debt-to-capital ratio formula is:

Debt-to-Capital Ratio = Total Liabitilies / Total Capital

If the company does not have any interest bearing debt in its favor, then, the formula can be written as:

Debt-to-Capital Ratio = Total Liabilities / Stockholder's Equity