Capitalization ratios, Financial Management

Assignment Help:

Capitalization ratios are used for determining the extent to which the corporation is trading on its equity, and the resulting financial leverage. These ratios are also referred to as financial leverage ratios. They can be interpreted only in the context of the stability of industry and company earnings and cash flow. It is assumed that if the industry expresses greater stability and company earnings and cash flows, it will be able to accept more risk associated witht the financial leverage.

There are many variants to calculate capitalization ratio. Some of them are- long-term debt to capitalization and total debt to capitalization

Long-term debt to capitalization = (Long-term debt)/ Long-term debt + Shareholders' equity including minority interest

Total debt to capitalization = (Current liabilities + Long-term debt)/Long-term debt + Shareholders' equity including minority interest

Commercial rating companies mostly depend on long-term debt to capitalization ratio. Though this ratio is useful, with the frequent change in interest rates, many corporations are opting to finance a good deal of business with short-term debt. Other consideration in using long-term debt to capitalization ratio involves leased assets. Though obligations on leased assets are similar to that of bond coupon and repayment obligations, they are capitalized and shown in the balance sheet.


Related Discussions:- Capitalization ratios

Define conservative type of working capital financing plan, What is the mos...

What is the most conservative type of working capital financing plan a company could implement?  Explain. An all equity capital structure would be mainly conservative type of wor

Determine the optimal production quantity, Water Wheelies manufactures high...

Water Wheelies manufactures high-pressure sprinkler heads. These are produced periodically at a rate of 20,000 per month. Demand is steady at 15,000 per month. Each production run

Calculate the total cashflows, Calculate the Total Cashflows from 2007 - 20...

Calculate the Total Cashflows from 2007 - 2011.  Suppose that the company will require to increase their annual investment in fixed assets (representing new equipment) at the simil

Compute the dividend policy and the value of the firm, Q. Compute the divid...

Q. Compute the dividend policy and the value of the firm? Rate of Return: (i) 15% (ii) 10% (iii)8% Cost of Capital (Ke) = 10% Earning per share (E) = Rs. 10 C

Explain the sovereign risk, Explain the Sovereign Risk Sovereign risk d...

Explain the Sovereign Risk Sovereign risk denotes a country imposing exchange restrictions on a currency included in a swap making it expensive, or not possible, for a counterp

How to finance the exit of the financiers, How to finance the exit of the f...

How to finance the exit of the financiers The company would have to decide how to finance the exit of the financiers. Considerations comprise: (i)  Selling shares to the pub

Determinants of the repo rate, Repo rates vary from transaction to tr...

Repo rates vary from transaction to transaction. They depend upon a variety of factors like: Collateral's quality Repo term

Describe the sales forecasting process, Describe the sales forecasting proc...

Describe the sales forecasting process. It is a group effort. Sales and marketing personnel generally offer assessments of demand and the competition. Production personnel genera

Corrective action on variance analysis, Corrective Action: Once budget ...

Corrective Action: Once budget figures are compared with those actually achieved, and a variance analysis carried out, management can then take steps to correct any problems id

currency options, Do you guys provide Currency Options assignment help? I ...

Do you guys provide Currency Options assignment help? I need writing a report on Currency Options and it is about 2000 words. Let me know. I need to buy your solution.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd