1. What is Capital Ratio?

The Capital Ratio is a financial metric that measures a company's capital adequacy by expressing capital as a percentage of total assets. It indicates the proportion of assets that are funded by equity rather than debt.

2. How Does the Calculator Work?

The calculator uses the Capital Ratio formula:

Where:

• \( \text{Capital} \) — Total capital or equity (in currency)
• \( \text{Assets} \) — Total assets (in currency)
• \( 100 \) — Conversion to percentage

Explanation: The formula calculates what percentage of total assets is covered by capital, providing insight into financial stability and risk management.

3. Importance of Capital Ratio

Details: Capital Ratio is crucial for assessing a company's financial health, determining its ability to absorb losses, and evaluating compliance with regulatory requirements. Higher ratios generally indicate stronger financial positions.

4. Using the Calculator

Tips: Enter capital and assets in the same currency units. Both values must be positive numbers. The calculator will automatically compute the capital ratio as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Capital Ratio?
A: A Capital Ratio above 8-10% is generally considered healthy for most businesses, though optimal ratios vary by industry and regulatory requirements.

Q2: How does Capital Ratio differ from Debt-to-Equity Ratio?
A: Capital Ratio focuses on capital as a percentage of total assets, while Debt-to-Equity compares debt directly to equity. Both measure financial leverage but from different perspectives.

Q3: Why is Capital Ratio important for banks?
A: For banks, Capital Ratio (especially Tier 1 Capital Ratio) is critical for regulatory compliance and indicates the bank's ability to withstand financial stress and protect depositors.

Q4: Can Capital Ratio be too high?
A: Excessively high Capital Ratio may indicate underutilization of assets or overly conservative financial management, potentially missing growth opportunities through appropriate leverage.

Q5: How often should Capital Ratio be calculated?
A: Companies should monitor Capital Ratio regularly, typically quarterly, to ensure ongoing financial stability and compliance with any regulatory requirements.