Calculating Capitalization Ratios

Capitalization ratios, also widely known as financial leverage ratios, provide a glimpse of a company’s long-term stability and ability to withstand losses and business downturns.

What They Measure

By comparing debt to total capitalization, these ratios reflect the extent to which a corporation is trading on its equity, and the degree to which it finances operations with debt.

While not the focus here, capitalization ratio also refers to the percentage of a company’s total capitalization contributed by debt, preferred stock, common stock, and other equity.