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Simple English definitions for legal terms
capital ratio
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A quick definition of capital ratio:
A capital ratio is a measure of a company's financial strength. It compares the amount of money the company has raised through investments or other means to the total value of the company. This ratio helps investors and analysts understand how much money a company has available to cover its debts and other financial obligations. A higher capital ratio indicates that a company is better able to weather financial challenges and is generally considered a positive sign for investors.
A more thorough explanation:
A capital ratio, also known as a 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 $100 million, its capital ratio would be 10%.
The capital ratio is an important measure of a company's financial health and stability. A higher capital ratio indicates that a company has a larger cushion of capital to absorb losses and maintain operations during difficult times. This can be particularly important for companies in industries that are subject to economic volatility or regulatory changes.