Capitalization ratio is also called Cap ratio. It is used to measure the solvency of the business by calculating the total debt component of the company’s capital structure of the balance sheet.
By comparing the total debt with total equity or section of equity, the capitalization ratio calculates the financial leverage of any business.
Two main components of any business’s capital structure are debt and equity because from these components business can finance its operation.
The capitalization ratios which are mostly used are listed below
- Debt to Equity ratio
- Long-term debt ratio
- Debt to Capitalization ratio.
Financial Ratio is a forum where you will learn about all ratios definitions and formulas.