Net Debt to Capital

Category

Ratios

Units

Percent

Formula

Net Debt / (Net Debt + Total Shareholders' Equity)

Source

Calculated by GeminIQ from figures reported in SEC filings

Net debt to capital divides a company's net debt, meaning total borrowings minus cash and cash equivalents, by the sum of that net debt and shareholders' equity. It shows what percentage of the company's net funding comes from lenders once available cash is credited against debt.

The ratio ranges from 0% for a company whose cash exactly offsets its debt to 100% for one financed entirely by net borrowing. It turns negative when cash exceeds debt, which signals a net cash position.

The ratio is calculated from balance-sheet figures reported in SEC filings. Net debt is not a US GAAP line item. It is total debt minus cash and cash equivalents, where total debt is reported directly or summed from short-term and long-term borrowings, and cash is usually tagged CashAndCashEquivalentsAtCarryingValue in XBRL. Shareholders' equity is commonly tagged StockholdersEquity. Adding net debt to equity in the denominator keeps the ratio on the same basis as its numerator, so it describes net capital rather than gross capital.

Some providers instead divide net debt by total capital measured as gross debt plus equity. That version produces a lower figure and is not directly comparable, so check the denominator before comparing numbers from different sources. Because the measure is expressed as a percentage of capital, it stays bounded for most companies and is easier to compare across firms than net debt to equity, which can become very large when equity is small.

Netting cash assumes it could actually be applied to debt. Cash trapped in foreign subsidiaries, reserved for an announced acquisition, or held for regulatory reasons does not reduce a company's real obligations, and in those cases gross debt to capital is the more cautious view. The ratio breaks down when equity is negative, since the denominator can approach zero or fall below it. It is not a meaningful measure for banks and insurers, whose cash and borrowings are part of their operations.