Certified Management Accountant 2025 – 400 Free Practice Questions to Pass the Exam

The ratio that indicates the proportion of a company's capital that is provided by debt is the total debt to total capital ratio. This ratio is calculated by dividing a company's total debt by its total capital, which includes both debt and equity. A higher ratio indicates that a larger proportion of the company’s capital structure is financed by debt, and this can signal higher financial leverage and potentially higher financial risk.

In contrast, while the debt to equity ratio also provides insights into a company's financial leverage, it specifically compares the company's total debt to its total equity rather than reflecting the total capital structure. The net profit margin focuses on profitability by showing the percentage of revenue that remains as profit after expenses, and return on assets measures how effectively a company uses its assets to generate profit. These ratios do not directly address the relationship between debt and total capital.