Total Debt-to-Capitalization

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Definition of 'Total Debt-to-Capitalization'

Total debt-to-capitalization is a financial ratio that measures a company's leverage. It is calculated by dividing a company's total debt by its total capitalization. Total debt includes both short-term and long-term debt, while capitalization includes both debt and equity.

A high total debt-to-capitalization ratio indicates that a company is using a lot of debt to finance its operations. This can be a sign of financial risk, as it means that the company is more likely to default on its debt payments. However, a high total debt-to-capitalization ratio can also be a sign of growth, as it means that the company is investing in its future.

The total debt-to-capitalization ratio is a useful tool for comparing companies within the same industry. A company with a lower total debt-to-capitalization ratio is generally considered to be less risky than a company with a higher total debt-to-capitalization ratio.

Here are some additional points to consider about total debt-to-capitalization:

* The total debt-to-capitalization ratio is not as useful for companies with negative equity, as it can artificially inflate the ratio.
* The total debt-to-capitalization ratio can be affected by changes in interest rates. A rise in interest rates will increase the cost of debt, which will lead to a higher total debt-to-capitalization ratio.
* The total debt-to-capitalization ratio can be affected by changes in the value of a company's assets. A decline in the value of assets will lead to a lower total capitalization, which will increase the total debt-to-capitalization ratio.

Overall, the total debt-to-capitalization ratio is a useful tool for assessing a company's financial risk. However, it is important to consider other factors when making investment decisions, such as the company's business prospects and its ability to generate cash flow.

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