Capitalization ratio, also known as financial leverage ratio, is the ratio that determines the contribution of each financial component to the total capitalization of the company. The capitalization ratio determines the percentage of contribution from each of these components. Capitalization ratio is calculated using the following formula:
These measures are important because they can affect portfolio returns.
Basics Market capitalization is the product of share price and the number of outstanding shares. Market Capitalization Small-cap, mid-cap and large-cap are the most common stock classifications by market cap. According to a summary table on the Fidelity website, small- and large-cap stocks are usually among the best or worst market performers, with mid-caps usually in the middle.
Mid-caps are companies that have an operating history, reasonably strong cash flow and moderate earnings growth. Small-cap stocks, which are new and rapidly-growing companies, tend to be more volatile than large-cap stocks, which are usually established companies with diversified products and global operations.
Considerations Research has shown that small-cap stocks tend to generate a higher return on investment than large-cap stocks.
This makes intuitive sense because small companies usually grow from a smaller revenue and profit base, which makes the growth rates higher. The returns for larger companies are more modest because they tend to have a dominant position in most of their major markets and have little room to grow.
However, these companies tend to have strong cash flows, which they can use to make strategic acquisitions, repurchase shares or pay dividends to shareholders.InvestorWords - The Most Comprehensive Investing Glossary on the Web!
Over financial and investing definitions, with links between related terms. Preferred stock ratio Definition: Preferred stock at par value divided by total capitalization, which gives the portion of capitalization that consists of preferred stock.
It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock's price. Price to Earnings Ratio - The most common measure of how expensive a stock kaja-net.com P/E ratio is equal to a stock's market capitalization divided by its after-tax earnings over a month period, usually the trailing period but occasionally the current or forward period.
Market capitalization and price-to-earnings ratio describe the size and relative valuation of stocks, respectively. These measures are important because they can affect portfolio returns.
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