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Simple English definitions for legal terms
capitalization ratio
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A quick definition of capitalization ratio:
Capitalization ratio is a measure of how much money a company has raised compared to its total value. It shows how much of the company is owned by investors who have put in money. For example, if a company has raised $10 million and its total value is $100 million, the capitalization ratio would be 10%. This ratio is also called the capital ratio.
A more thorough explanation:
The capitalization ratio is a financial metric that measures the proportion of a company's capital that is raised through equity or debt financing. It is calculated by dividing the amount of capital raised by the total capitalization of the firm.
For example, if a company raises $10 million in equity and has a total capitalization of $50 million, its capitalization ratio would be 0.2 or 20%.
The capitalization ratio is an important indicator of a company's financial health and its ability to meet its financial obligations. A high capitalization ratio indicates that a company has a strong financial position and is less reliant on debt financing, while a low capitalization ratio may suggest that a company is highly leveraged and may be at risk of defaulting on its debt.