 # Difference between Debt-to-asset and debt-to-capital ratios?

Are these two ratios not the same because Asset = liabilities + equity? Debt-to-Asset = debt / asset Debt-to-Capital = debt / (debt + shareholder’s equity) Is shareholder’s equity different than equity? Thanks.

I’ve been answering questions thinking they are exactly the same (as long as you’re referring to total capital). As for shareholder’s equity, yes, that’s the same as equity in the equation.

I took those equations directly from the CFAI text, so it should be the total company capital… I just don’t know why CFAI text listed them twice, same thing with schweser SS.

Well I think they list both because both terms are used in the finance industry so it’s good to know both.

I think they are different. I also read about the ROE, it is explained that there are two way of calculating ROE: 1/ ROE maybe equal to Net Income divided by total shareholder equity 2/ or ROE maybe equal to Net Income divided by total shareholder investment. And it is said that shareholder equity is original investment which shareholder put into the company. Shareholder investment is bigger than shareholder equity because it may include fund, retain earnings, abnormal gain… So, as your confusion i think asset amount maybe different with capital amount because shareholder equity different with shareholder investment. If i misunderstood, pls kindly correct me right away! Thanks a lot!

But ending equity of a period is beginning equity plus retained earnings. now i am confused… i hope someone can clear it up. Thanks.

they are the same capital= equity +debt assets are bought using equity and debt financing. Total assets= debt +equity

Does something called debt ratio exists? S

yes % of debt over total assets and its different from debt to equity ratio which is debt/equity

Capital in this sense refers to (equity + interest bearing debt).

wyantjs said, debt refers to interest bearing instruments, not to liabilities in general… When you look at cost of capital, do you look at cost of accounts payable and accrued expenses/ (hint: no.)

Debt Ratios are: 1. Debt-to-assets ratio= Total Debt/Total Assets 2. Debt-to-capital ratio= Total Debt/ Total Debt+ Total SE 3. Debt-to-equity ratio= Total Debt/ Total SE 4. Financial leverage ratio = Ave. total assets/Ave. total equity Debt-to-assets ratio is sometimes called “Total Debt Ratio”. Total Debt in the equations is equal to the sum of interest bearing short-term and long-term debt.