# Definition of __Capitalization ratios__

## Capitalization ratios

Also called financial leverage **ratios**, these **ratios** compare debt to total **capitalization**

and thus reflect the extent to which a corporation is trading on its equity. **capitalization ratios** can be

interpreted only in the context of the stability of industry and company earnings and cash flow.

# Related Terms:

Related: **capitalization ratios**.

Capitalizing and reporting as assets significant portions of

expenditures, the realization of which require unduly optimistic assumptions.

Cost **capitalization** that stretches the flexibility within generally

accepted accounting principles beyond its intended limits, resulting in reporting as assets

items that more reasonably should have been expensed. The purpose of this activity is likely to

alter financial results and financial position in order to create a potentially misleading impression

of a firm's business performance or financial position.

**ratios** that measure how effectively the firm is managing its assets.

Terms that refer to the combination of

capital sources that a business has tapped for investing in its assets—in

particular, the mix of its interest-bearing debt and its owners’ equity. In a

more sweeping sense, the terms also include appendages and other features

of the basic debt and equity instruments of a business. Such things

as stock options, stock warrants, and convertible features of preferred

stock and notes payable are included in the more inclusive sense of the

terms, as well as any debt-based and equity-based financial derivatives

issued by the business.

The debt and/or equity mix that fund a firm's assets.

The total amount of debt and equity issued by a company.

A method of constructing a replicating portfolio in which the manager purchases a

number of the largest-capitalized names in the index stock in proportion to their **capitalization**.

When a cost is recorded originally as an increase

to an asset account, it is said to be capitalized. This means that the outlay

is treated as a capital expenditure, which becomes part of the total

cost basis of the asset. The alternative is to record the cost as an expense

immediately in the period the cost is incurred. Capitalized costs refer

mainly to costs that are recorded in the long-term operating assets of a

business, such as buildings, machines, equipment, tools, and so on.

A discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate.

A table showing the **capitalization** of a firm, which typically includes the amount of

capital obtained from each source - long-term debt and common equity - and the respective **capitalization**

**ratios**.

**ratios** that are designed to measure the relative claims of stockholders to earnings

(cash flow per share), and equity (book value per share) of a firm.

**ratios** used to test the adequacy of cash flows generated through earnings for purposes of

meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.

A range of payout **ratios** that is typical based on an analysis of comparable firms.

Payout **ratios** that are consistent with the availability of excess funds to make

cash dividend payments.

## Leverage ratios

Measures of the relative contribution of stockholders and creditors, and of the firm's ability

to pay financing charges. Value of firm's debt to the total value of the firm.

## Liquidity ratios

**ratios** that measure a firm's ability to meet its short-term financial obligations on time.

## Liquidity ratios

**ratios** that measure a firm's ability to meet its short-term financial obligations on time.

## Long-term debt/capitalization

Indicator of financial leverage. Shows long-term debt as a proportion of the

capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and

common stockholder equity.

## Market capitalization

The total dollar value of all outstanding shares. Computed as shares times current

market price. It is a measure of corporate size.

## Market Capitalization

Aggregate value of a corporation as determined by the market price of its total issued and outstanding stock.

## market capitalization, or market cap

Current market value per share of

capital stock multiplied by the total number of capital stock shares outstanding

of a publicly owned business. This value often differs widely from

the book value of owners’ equity reported in a business’s balance sheet.

## Market capitalization rate

Expected return on a security. The market-consensus estimate of the appropriate

discount rate for a firm's cash flows.

## Market value ratios

**ratios** that relate the market price of the firm's common stock to selected financial

statement items.

## profit ratios

**ratios** based on sales revenue for a period. A measure of

profit is divided by sales revenue to compute a profit ratio. For example,

gross margin is divided by sales revenue to compute the gross margin

profit ratio. Dividing bottom-line profit (net income) by sales revenue

gives the profit ratio that is generally called return on sales.

## Profitability ratios

**ratios** that focus on the profitability of the firm. Profit margins measure performance

with relation to sales. Rate of return **ratios** measure performance relative to some measure of size of the

investment.

## Rate of return ratios

**ratios** that are designed to measure the profitability of the firm in relation to various

measures of the funds invested in the firm.

## Reserve ratios

Specified percentages of deposits, established by the Federal Reserve Board, that banks must

keep in a non-interest-bearing account at one of the twelve Federal Reserve Banks.

## Short-term solvency ratios

**ratios** used to judge the adequacy of liquid assets for meeting short-term

obligations as they come due, including

1) the current ratio,

2) the acid-test ratio,

3) the inventory turnover ratio, and

4) the accounts receivable turnover ratio.

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