Legal Definitions - capital ratio

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.