# Debt to capital ratio

In chapter 53 total debt to capital ratio is = (LT debt + current liabilities) / total cap. However, in the financial ratio list from the equity book equation #28, current liabilities are excluded from total debt. So which one do we use? do we include current liabilities as part of total debt or not? Thanks

There are two different ratios. Long-Term Debt to Capital and Total Debt to Capital.

Oh I see… but common sense would say to add current liabilities in total debt but not in LT debt… I guess I’ll have to make an effort to remember it’s the opposite. Thanks Chuck!

Current liabs should be part of total debt and not LT debt, no? why not? It depends if it’s interest bearing debt or not? canadiananalyst Wrote: ------------------------------------------------------- > Oh I see… but common sense would say to add > current liabilities in total debt but not in LT > debt… I guess I’ll have to make an effort to > remember it’s the opposite. > Thanks Chuck!

CL should ALWAYS be a part of Total Debt. Sorry I wasn’t assigning specific ratio names to the order of your post. LTD = LTD Only (Excludes current portion of LTD due in 365 days) TD = CL + LTD

yeah thats what i thought, thanks

well that’s what was confusing me. According to the formula sheet from the CFAI book, Total debt= The total of interest bearing short therm and long term debt, excluding liabilities such as accrued expenses and accounts payables. so technically, CL is excluded from TD.

canadiananalyst Wrote: ------------------------------------------------------- > well that’s what was confusing me. > According to the formula sheet from the CFAI book, > > Total debt= The total of interest bearing short > therm and long term debt, excluding liabilities > such as accrued expenses and accounts payables. > > so technically, CL is excluded from TD. Yes, Total Debt to Capital ratio does not have CL. Total debt = ST debt + LT debt. ST debt could be current portion of LT debt, Notes Payables, etc.

thanks canadian & Iginla. So Accounts payable and accrued liabilities are NOT part of total debt since THEY ARE NOT INTEREST BEARING