Imagine a company holding bitcoin. Its reserve alone does not reveal whether shareholders supplied the money, a bank lent it or other preferential claims were created. Capital structure is the arrangement of those funding sources and rights. It tells us who provided money, when payment is due and who ranks ahead of whom. Assets are what the company has; financing explains the obligations and ownership claims connected with them. For shareholders this distinction matters: valuable corporate assets can still leave little for them after other claims. Equity does not come only from shareholder contributions. Profits retained in the business instead of paid to owners can also increase it; losses reduce it.
A creditor lends under repayment terms, whereas a shareholder owns an interest in the business. Preferred stock can rank ahead for purposes such as dividends, with common stock behind it. The name alone does not determine accounting classification. A dividend is a payment to a shareholder under the rights attached to the share; it is not the same as loan interest. A convertible instrument allows exchange into shares under specified terms. The international accounting standard IAS 32 distinguishes liabilities from equity primarily by examining obligations to deliver cash, subject to exceptions and special rules. It separates some compound convertible instruments into debt and equity components. Another accounting standard may present an instrument differently. Read its terms and the applicable rules, rather than relying on the word share on its cover. [2]
In these examples, USD means US dollars and BTC means bitcoin. Monetary amounts are in dollars unless explicitly stated in bitcoin. Our own model has debt of 60 USD and book common equity of 30: 60/30 = 2. Book equity comes from the balance sheet, the statement of assets and liabilities. Substituting common shares’ market value of 90 gives 60/90 = 0.6667. The denominator changed, not the amount owed. These figures therefore do not mean the company repaid some debt. This model also excludes preferred capital, so it does not describe every claim. With zero or negative equity, the usual reading of the ratio may break down. Any such figure needs its basis and scope explained. [1]
Consider our simplified liquidation, the distribution of available assets when a company is wound up. Assets are 80 USD, adequately secured debt is 30, other debt 40 and the sole preferred class has a preference of 20. After paying 30 and 40, only 10 remains for preferred shares and nothing for common shares. The collateral here fully covers the secured debt: specific assets support that creditor’s claim. The model omits costs and other statutory priorities. Actual results depend on contracts and law. A higher place in line is not a promise of full payment if assets are insufficient. [3]
Strategy is a company with bitcoin reserves; STRF identifies one of its preferred-share series. A parent controls a subsidiary, but each company has its own obligations. A corporate group is not a shared wallet. Strategy’s material of 23 August 2026 states that STRF also ranks behind subsidiary liabilities. Our model subsidiary has assets of 60 and liabilities of 50, leaving at most 10 for its parent. The holder of a bond issued by the parent for 30 does not automatically receive 30 from that. This model has no subsidiary guarantee or other assets. For a real group, establish who owes the money, who owns the assets and whether another company guarantees the debt. Collateral and restrictions on transfers within the group matter as well. [4]
The company in our model has total assets of 100 USD, including only 5 in cash, and payments of 20 due now. Without new receipts, sales or financing, the shortfall is 15. Owning more than today’s payment does not settle the bill. Balance-sheet coverage of obligations and liquidity, the ability to obtain money for timely payment, answer different questions. Selling a building or bitcoin may take time or come at a poor moment. A refinancing plan, replacing old debt with new funding, is not secured cash either. Look at the payment calendar alongside total debt. [1]
Imagine an actually completed conversion: debt of 20 USD is exchanged for 10 new shares alongside the original 100. Debt falls by 20, there are 110 shares, and the holder of an original 10 has 10/110 = 9.09% rather than 10%. Debt has become an ownership claim; this is not cash repayment. The original shareholder still holds the same shares but a smaller percentage. A conversion option alone does not make this happen. Check whether the conditions were met and the exchange actually took place, or whether the calculation only illustrates possible future dilution. [2]
In our own model the company holds 100 BTC. Creditors’ and preferred shareholders’ fixed dollar claims against the company at the given price correspond to debt of 30 BTC and preferred rights of 20 BTC. The simplified remainder is 50 BTC before costs. If the dollar price of BTC halves, the same dollar claims correspond to 100 BTC and nothing remains. The dollar debt did not increase; covering it simply takes more bitcoin. This is not a definition of Net BPS (net Bitcoin Per Share), a corporate measure after specified deductions, or a shareholder’s direct right to BTC. The example shows why gross bitcoin holdings alone cannot value a common share. This example assumes no other assets or claims; the BTC amounts simply express the value of dollar claims at the given price. [5]
SEC is the US Securities and Exchange Commission. In SEC EDGAR, the public US regulatory filings database, combine the balance sheet with notes on debt, shares and events after the reporting period. For each issuance, a particular issue of securities, record the company, currency, amount, rate, maturity, collateral, ranking, conversion and contractual restrictions. New financing or a repurchase changes the overview. Distinguish the contractual face amount, accounting carrying value and market price. An authorised credit facility, permission to borrow under specified conditions, is not money already drawn or unconditionally available. That overview explains more than a debt ratio on its own. [6]
For the clearest picture, read this entry together with Common stock, Preferred stock, Convertible note, Debt maturity. The reverse links also lead from Dilution, Convertible note, Preferred stock, Digital credit.