Question

How is the proportion of debt in total capital expressed?

Options

• \[\frac{\mathrm{Debt}}{\mathrm{Equity}}\]

• \[\frac{\mathrm{Debt}}{\mathrm{Debt}+\mathrm{Equity}}\]

• \[\frac{\mathrm{Equity}}{\mathrm{Debt}+\mathrm{Equity}}\]

• \[\frac{\mathrm{EBIT}}{\text{Total Investment}}\times100\]

Answer 1

The proportion of debt in total capital is \[\frac{\mathrm{Debt}}{\mathrm{Debt}+\mathrm{Equity}}\]. Its denominator includes both debt and equity.