Capitalization Ratios

Big companies carry big debts, at least in total terms.

GlobalMicroTechBioPharma Corp. owes $10 billion to people in various forms, through things like borrowing from banks and bond issuances. That amount sounds like a lot, but the company also has $100 billion in annual revenue. So, keeping up with the debt service payments isn't a big deal.

Like how some people might get evicted from a $250,000 house because they can't afford the mortgage payments. Meanwhile, Elon Musk can easily keep up with the payments for many multi-million dollar mansions. Something affordable for one person might be out of the question for other people. Different people can handle different debt levels.

But how does a company know whether its debt levels are too high? Capitalization ratios. These figures show the amount of debt a company has compared to the amount of other capital it has (especially equity).

A few types of capitalization ratios exist.

You've got the Debt-to-Equity Ratio. It shows the amount of debt that a company has, versus the amount of equity it has issued.

You've got Long-Term Debt-to-Capitalization ratios. This figure indicates the amount of debt a company has compared to its total capitalization. The total capitalization includes both the debt and the shareholders' equity.

Then you've got the Total Debt-to-Capitalization ratio. This number compares the company's total debt to its total capitalization.

That's the holy trinity. Pray to them often.