debt/capital ratio

CFA Level I
#1

Hi,

Schweser Notes book 5, page 147, the challenge problem:

They calculate the capital in debt/capital ratio as total liabilities and equity whereas previously in the book they say that capital is “the sum of total debt and shareholders’ equity”.

Can anyone please shed some light?

Thanks

#2

Capital is both Debt and Equity, it’s how much is available for the firm to use. Debt is a liability and Equity is shareholders equity. Not quite sure what you’re asking.

#3

They are referring to total interest bearing liabilities, not total liabilities (debt + suppliers, etc.). If you think about it, in general liabilities towards suppliers are interest free and thus have no cost so there is no need to include the amount in debt.

Hope it helps.