Capital ratio

Capital ratio defined by Eq. (9-134) Capital-rate-of-return ratio defined by Eq. (9-56)... 

Clearly, (FATR) is of less value than (ATR) when applied to companies that use relatively large amounts of working capital. The (FATR) is the inverse of the capital ratio (CR) for single projects. (CR) is defined as... 

Working-Capital Ratios Financial analysts make extensive use of ratios in assessing the economic health of a company. For evaluating the ability of a company to successfully maintain and develop its immediate business activities, analysts apply a current ratio and a quick (or acid-test) ratio, as given by... 

However, Lynn and Howland included in the fixed-capital cost not only money invested in production and storage facilities but also that invested in land, research and development costs, and any auxiliary facihties necessaiy to support the process. Typical values of capit ratios for the year 1958 are listed in Table 9-49. 

Capital ratio = (fixed-capital investment)/(anniial sales revenue). 

Capital ratio Ratio of capital investment to sales dollars the reciprocal of capital turnover. 

Capital turnover The ratio of sales dollars to capital investment the reciprocal of capital ratio. 

Fig. 16.8 Comparison of total shareholder returns and market/invested capital ratios for less cyclical and more cyclical chemical companies, 1987-98 Source McKinsey...

Capital costs for plants, 186-187 Capital gains taxes, 156-157 Capital investments, 157-158 cost factors in, 166-179 estimation of 158-163, 179-193, 210 types of 157-158 Capital ratio, 191 Capital-iecovery factor, 228 Capital sink, 150-152 Capitahzed costs apphcation of 231-232 definition of 230-231 equations for, 231... 

Another economic indicator, the debt-to-capital ratio, is defined as the long-term debt divided by the total capital. This ratio is an indication of how highly leveraged a company might be. The ratios for a selected industries are found in Table 8.33. The ratios for these companies have been relatively constant in the range of 0.27 to 0.42 over a 10 year period (1984-1994). As an example of how the debt-to-equity ratio affects the return on equity, let us consider two companies.. Company A has a debt-to-equity ratio of 0.35, and company B s ratio is 0.80 (see Table 8.34). Assume that the interest rate on debts is 10% and that each company earns 30 cents per dollar of capital before income tax and interest. The problem is solved by assuming that debt plus equity equals capital assets, which... 

Table 8.33 Debt-to-Capital Ratios for Selected Industries, 1994...

P capital ratio, or reciprocal of turnover ratio (see equation 15.32), y raw material to sales ratio, d depreciation charge. 

At first sight, it seems somewhat contradictory that the aggregate capital stock decreases (0.04%) while aggregate investments increases (0.04%). This is nevertheless an effect of assumed fixed investment/capital ratios in each industry and the fact that a decline capital stocks in industries with relatively low investment/capital rates weigh more in the total result than increasing capital stocks in industries with relatively large investment/capital ratios. 

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