Debt Ratios: Capitalizing Ratios

      

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Series : Ratio Analysis    (13 th Post)

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This Ratio helps us to understand the Long term Debt or Liabilities to support companies operations and growth over a time  or The capitalization ratio reflects the extent to which a company is operating on its equity.

The companies with high capitalization ratio are considered to be risky because they are at a risk if they fail to repay their debt on time. Companies with a high capitalization ratio may also find it difficult to get more loans in the future.


A high capitalization ratio is not always bad, however, higher financial leverage can increase the return on a shareholder’s investment because usually there are tax advantages associated with the borrowings. 

Formula:  Capitalization Ratio % = Long Term Debt  /  ( Long Term Debt + Shareholder Equity )

Next Post on Ratio Analysis:  Debt Ratios : Interest Coverage Ratio

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In my quest for learning value investing I came acrros this interesting article and thought would like to share this with the community

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