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Capitalization Ratio Calculator

Evaluate financial leverage with this Capitalization Ratio tool. Features 'What-If' scenarios to analyze debt structure changes. Ideal for corporate finance analysis.

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About

The Capitalization Ratio is a key solvency metric used by analysts and investors to gauge the extent of a company's leverage. It measures the proportion of debt in the total capital structure (Debt + Equity). A lower ratio generally indicates a financially stable company with a conservative capital structure, whereas a high ratio suggests aggressive growth financed by debt, which increases financial risk (bankruptcy) during economic downturns.

This tool is designed for scenario planning. By adjusting the debt or equity inputs in the 'What-If' simulator, CFOs or investors can visualize how issuing new bonds or buying back stock would alter the company's risk profile against industry health benchmarks.

finance leverage debt equity capital structure solvency investment

Formulas

The capitalization ratio compares long-term debt to the total capitalization.

Ratio = Long Term DebtLong Term Debt + Shareholders' Equity × 100%

Total Capitalization is defined as:

Total Cap = DebtLT + EquitySH

Reference Data

IndustryTypical Cap RatioRisk Profile
Technology / Software0% - 20%Low (Asset Light)
Consumer Goods20% - 40%Moderate
Utilities / Telecom40% - 60%High (Capital Intensive)
Real Estate (REITs)40% - 70%Very High (Leveraged)
General Healthy< 35%Conservative

Frequently Asked Questions

Generally, a ratio under 35% is considered healthy. However, this varies by industry. Utilities often sustain high debt (50%+) due to stable cash flows, while tech startups typically aim for near 0% debt to maintain agility.
Strictly speaking, the Capitalization Ratio focuses on 'Long-Term Capital' (Long-Term Debt + Equity). However, Total Debt/Capitalization ratios can be calculated by including short-term liabilities if assessing immediate liquidity risk.
Debt requires fixed interest payments regardless of revenue. If a company's earnings drop (e.g., recession), it may fail to meet these payments, leading to default or bankruptcy. Equity does not require mandatory payments.