12 Most Important Capital Structure Optimization KPIs


The top KPIs are vital for Capital Structure Optimization as they provide quantifiable metrics that gauge the efficiency, effectiveness, and sustainability of a company's debt and equity mix. These indicators help managers and investors understand how well the firm is leveraging its capital to generate profits and shareholder value.

By analyzing KPIs related to debt levels, interest coverage, and capital costs, companies can make informed decisions about financing strategies, such as when to issue debt or equity and how to balance the two.

This article showcases the Most Critical 12 KPIs for Capital Structure Optimization and Associated Benchmarks.

1. Debt to Equity Ratio

The Debt to Equity Ratio (D/E) is a crucial financial ratio that measures a company's financial leverage by comparing its total liabilities to shareholders' equity.

This KPI matters because it directly influences financial health, operational efficiency, and risk management. A higher ratio indicates greater reliance on debt financing, which can amplify returns but also increases risk.

Conversely, a lower ratio suggests a more conservative approach, potentially leading to lower returns but greater stability. Learn more about the Debt to Equity Ratio KPI.

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We have 3 benchmarks for this KPI available in our database.

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2. Interest Coverage Ratio

Interest Coverage Ratio (ICR) is a critical financial metric that measures a company's ability to meet its debt obligations.

It directly influences financial health, operational efficiency, and strategic alignment. A higher ratio indicates robust earnings relative to interest expenses, suggesting lower risk for stakeholders.

Conversely, a low ICR can signal potential liquidity issues, prompting management to reassess cost control metrics and debt strategies. Learn more about the Interest Coverage Ratio KPI.

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We have 5 benchmarks for this KPI available in our database.

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3. Debt Service Coverage Ratio (DSCR)

Debt Service Coverage Ratio (DSCR) is a critical financial ratio that measures a company's ability to service its debt obligations.

It directly influences cash flow management, operational efficiency, and overall financial health. A higher DSCR indicates a stronger capacity to meet debt payments, which can enhance creditworthiness and lower borrowing costs.

Conversely, a low DSCR may signal potential liquidity issues, prompting management to reassess financial strategies. Learn more about the Debt Service Coverage Ratio (DSCR) KPI.

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We have 4 benchmarks for this KPI available in our database.

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4. WACC (Weighted Average Cost of Capital)

WACC (Weighted Average Cost of Capital) serves as a critical metric for assessing a company's financial health and investment viability.

It reflects the average rate a company is expected to pay to finance its assets, influencing strategic alignment and capital budgeting decisions. A lower WACC indicates cheaper capital costs, enabling firms to pursue growth opportunities more aggressively.

Conversely, a higher WACC can signal increased risk and deter investment. Learn more about the WACC (Weighted Average Cost of Capital) KPI.

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We have 7 benchmarks for this KPI available in our database.

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What is the standard formula?
(Equity / Value) * Cost of Equity + (Debt / Value) * Cost of Debt * (1 - Tax Rate) + (Preferred Stock / Value) * Cost of Preferred Stock

5. Financial Leverage Ratio

Financial Leverage Ratio is crucial for assessing a company's financial health and risk profile.

It measures the extent to which a firm uses debt to finance its assets, influencing both return on investment (ROI) and operational efficiency. High leverage can amplify returns but also increases vulnerability to market fluctuations.

Conversely, low leverage may indicate underutilization of capital, potentially stifling growth. Learn more about the Financial Leverage Ratio KPI.

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We have 3 benchmarks for this KPI available in our database.

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What is the standard formula?
Total Assets / Total Shareholder's Equity


Related KPI Categories

6. Debt to Capital Ratio

The Debt to Capital Ratio is a critical financial metric that assesses a company's financial health by measuring the proportion of debt used to finance its assets.

A high ratio indicates increased financial risk, potentially leading to liquidity issues, while a low ratio suggests a conservative approach to leveraging. This KPI influences business outcomes such as cost of capital, investment capacity, and overall financial stability.

Companies with a balanced debt-to-capital ratio can optimize their capital structure, enhancing operational efficiency and driving growth. Learn more about the Debt to Capital Ratio KPI.

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We have 8 benchmarks for this KPI available in our database.

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What is the standard formula?
Total Debt / (Total Debt + Total Shareholder's Equity)

7. Net Debt to EBITDA Ratio

Net Debt to EBITDA Ratio is a critical financial ratio that gauges a company's ability to pay off its debt using its earnings before interest, taxes, depreciation, and amortization.

This KPI influences financial health, operational efficiency, and cost control metrics. A lower ratio indicates stronger financial stability, while a higher ratio may signal potential liquidity issues.

Companies with a favorable ratio can invest more in growth initiatives, enhancing their strategic alignment. Learn more about the Net Debt to EBITDA Ratio KPI.

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We have 4 benchmarks for this KPI available in our database.

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What is the standard formula?
Net Debt / EBITDA


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8. Cash Flow to Debt Ratio

Cash Flow to Debt Ratio is a vital KPI that measures a company's ability to cover its debt obligations with its cash flow.

It serves as a leading indicator of financial health, influencing business outcomes like creditworthiness and operational efficiency. A higher ratio indicates better liquidity and less reliance on external financing, while a lower ratio may signal potential cash flow issues.

Companies can leverage this metric to make data-driven decisions, ensuring strategic alignment with financial goals. Learn more about the Cash Flow to Debt Ratio KPI.

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What is the standard formula?
Operating Cash Flow / Total Debt


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9. Fixed Charge Coverage Ratio

Fixed Charge Coverage Ratio (FCCR) is a critical financial ratio that measures a company's ability to meet its fixed financial obligations, including interest and lease payments.

This KPI directly influences liquidity management, financial health, and overall operational efficiency. A higher ratio indicates stronger cash flow and better risk management, while a lower ratio may signal potential liquidity issues.

Executives should prioritize maintaining an optimal FCCR to ensure strategic alignment with long-term financial goals. Learn more about the Fixed Charge Coverage Ratio KPI.

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What is the standard formula?
(EBIT + Fixed Charges) / Fixed Charges


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10. Current Portion of Long-term Debt

The Current Portion of Long-term Debt (CPLTD) is a crucial financial ratio that indicates the amount of long-term debt due within the next year.

It serves as a leading indicator of a company's short-term liquidity and financial health, impacting cash flow management and operational efficiency. A high CPLTD may signal potential cash constraints, forcing management to prioritize cost control metrics and strategic alignment.

Conversely, a low CPLTD reflects a healthier balance sheet, enabling investments in growth initiatives. Learn more about the Current Portion of Long-term Debt KPI.

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We have 4 benchmarks for this KPI available in our database.

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What is the standard formula?
Total Long-Term Debt - (Long-Term Debt due in >1 Year)

11. Total Debt to Total Assets Ratio

Total Debt to Total Assets Ratio serves as a crucial indicator of financial health, reflecting how much of a company's assets are financed through debt.

A high ratio may signal potential liquidity issues, while a low ratio indicates a more stable capital structure. This KPI influences key business outcomes such as risk management, operational efficiency, and strategic alignment.

Organizations can leverage this metric to enhance cost control and improve ROI metrics. Learn more about the Total Debt to Total Assets Ratio KPI.

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We have 10 benchmarks for this KPI available in our database.

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What is the standard formula?
Total Debt / Total Assets

12. Equity Multiplier

Equity Multiplier is a critical financial ratio that measures a company's financial leverage, indicating how much of its assets are financed by equity.

A higher multiplier suggests greater reliance on debt, which can amplify returns but also increase risk. This KPI directly influences business outcomes such as return on equity and overall financial health.

Understanding the equity multiplier helps executives make data-driven decisions about capital structure and investment strategies. Learn more about the Equity Multiplier KPI.

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We have 1 benchmark for this KPI available in our database.

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What is the standard formula?
Total Assets / Total Shareholder's Equity


These 12 KPIs were selected to provide a comprehensive view of capital structure health, balancing leverage, coverage, and cost metrics. They span solvency (Debt to Equity Ratio, Debt to Capital Ratio), coverage capacity (Interest Coverage Ratio, Debt Service Coverage Ratio), and cost efficiency (WACC), enabling a full-spectrum assessment of financial risk and capital cost. This subset integrates both balance sheet strength and income statement coverage, ensuring actionable insights across financing and operational performance.

Track Debt to Equity Ratio alongside Interest Coverage Ratio to detect leverage stress: rising debt with declining interest coverage signals increasing default risk. Monitor WACC in relation to Financial Leverage Ratio—an increasing leverage ratio with stable or rising WACC indicates diminishing capital efficiency. Compare Cash Flow to Debt Ratio with Net Debt to EBITDA Ratio; divergence suggests liquidity constraints despite manageable leverage. These KPI interactions reveal capital structure imbalances and refinancing needs before distress manifests.

Prioritize Debt to Equity Ratio and Interest Coverage Ratio first, as they rely on readily available financial statements and provide immediate diagnostic clarity on leverage and debt service capacity. Follow with WACC to evaluate capital cost implications once cost of capital inputs are established. The full Capital Structure Optimization KPI set, with formulas and benchmarks, is accessible in the KPI Depot database.

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Related Best Practices


These best practice documents below are available for individual purchase from Flevy , the largest knowledge base of business frameworks, templates, and financial models available online.


KPI Depot (formerly the Flevy KPI Library) is a comprehensive, fully searchable database of over 20,000+ KPIs and 30,000+ benchmarks. Each KPI is documented with 12 practical attributes that take you from definition to real-world application (definition, business insights, measurement approach, formula, trend analysis, diagnostics, tips, visualization ideas, risk warnings, tools & tech, integration points, and change impact).

KPI categories span every major corporate function and more than 150+ industries, giving executives, analysts, and consultants an instant, plug-and-play reference for building scorecards, dashboards, and data-driven strategies.

Our team is constantly expanding our KPI database and benchmarks database.

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Each KPI in our knowledge base includes 12 attributes.

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The typical business insights we expect to gain through the tracking of this KPI

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An outline of the approach or process followed to measure this KPI

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The standard formula organizations use to calculate this KPI

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Insights into how the KPI tends to evolve over time and what trends could indicate positive or negative performance shifts

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Questions to ask to better understand your current position is for the KPI and how it can improve

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Potential risks or warnings signs that could indicate underlying issues that require immediate attention

Tools & Technologies

Suggested tools, technologies, and software that can help in tracking and analyzing the KPI more effectively

Integration Points

How the KPI can be integrated with other business systems and processes for holistic strategic performance management

Change Impact

Explanation of how changes in the KPI can impact other KPIs and what kind of changes can be expected


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