What Is a Debt-to-Capital Ratio?

The gearing ratio is an indicator of the company's use of financial leverage and solvency. The formula is: interest-bearing liabilities ÷ shareholders' equity.

Capital-liability ratio

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The gearing ratio is an indicator of the company's use of financial leverage and solvency. The formula is: interest-bearing liabilities ÷ shareholders' equity.

Chinese name

Capital-liability ratio

Foreign name

Debt to capital ratio

Types of

Financial leverage

Nature

Finance

definition

The gearing ratio reflects whether the company mainly relies on creditors to finance or shareholders to provide funds. The higher the ratio, the more the company relies on loans or corporate bonds to raise funds, and it also reflects the company's further use of financial leverage to raise debt, as well as the pressure on repayment and interest. As with the use of other debt ratios, how much the capital-liability ratio is reasonable and healthy must be compared between different companies in the same industry, and a dialectical analysis of the company's specific market position and business development stage.

The asset-liability ratio reflects the proportion of funds provided by creditors to all funds, and the degree to which corporate assets protect creditors' rights and interests. The lower this ratio (below 50%), the stronger the company's solvency

In fact, the analysis of this ratio also depends on who stands. From the creditor's standpoint, the lower the debt ratio, the better, the corporate debt guarantee is guaranteed, and the loan will not have much risk; from the shareholder's standpoint, when the total capital profit rate is higher than the borrowing interest rate, the larger the debt ratio, the better Because the profits that shareholders get will increase. From the perspective of financial management, when making capital borrowing decisions, the company should review the situation and take full account of it, fully estimate the expected profit and increased risk, weigh the gains and losses, and make the correct analysis and decision.

Tangible assets debt ratio = total liabilities ÷ total tangible assets × 100%

Of which: total tangible assets = total assets-(intangible assets and deferred assets + pending expenses)