For the harmonious organization of the company’s activities, many methods are used. The stability of the financial and economic activities of the enterprise allows you to comprehensively evaluate the correctness of management decisions in this area. The capitalization ratio is one of the components of this technique. His calculation allows us to assess the attractiveness of the enterprise for investors. Using the capitalization ratio, it is fashionable to evaluate the balance sheet structure and optimize it to increase profits in the planning period. Therefore, this indicator is so important for analysis.
The essence of the indicator
The capitalization ratio is the ratio of borrowed capital to the total currency of the balance sheet.
This allows you to assess the harmony of the ratio of borrowed and equity. The most famous formula for determining the capitalization ratio considers the structure of sources of financing the company from the point of view of borrowed capital. Sustainability will be the higher, the lower the indicator in question.
For a comprehensive analysis and the ability to draw adequate conclusions about the correct ratio of equity to debt capital, it is necessary to determine the capitalization ratio together with a number of other indicators. For example, with financial leverage. After all, having refused to attract borrowed funds, the company receives minimal profit. It is possible to increase your income only with the competent organization of credit sources.
Therefore, for a comprehensive assessment of the balance sheet structure, a coefficient for calculating the capitalization of an enterprise is used.
Calculation formula
The calculation of the presented indicator is considered in the aspect of the activity of a certain company. 
It is not evaluated in this case from the position of capitalization in the market. This allows us to consider the structure of the balance. The capitalization ratio, the formula of which is presented below, is calculated using Form 1 of the accounting report. Mathematically, it has the form:
KK = ДЗК / (ЗК + СК), where:
- DZK - long-term borrowed capital;
- ЗК - borrowed capital;
- SC - equity.
When calculating the capitalization ratio, it is necessary to draw a conclusion about its dynamics.
Indicator value
After the calculations, the analyst can draw certain conclusions. The capitalization ratio, the formula of which was considered above, shows the effect of borrowed capital on retained earnings. 
However, a quantitative indicator can be estimated using other methods. Here you can see only how paid sources of financing were distributed in the balance sheet structure. If the general calculation of the capitalization coefficient determined its growth, this means that the company received large profits from such sources of financing. Good or bad tell the subsequent research.
A decrease in the capitalization rate indicates that the company provides its activities for the light of increasing the share of its capital. It can be concluded that the organization due to such changes will pay creditors a smaller amount of interest on the use of their capital than in the previous period. More net profit will be directed to the reserve fund, to operating activities in the future period, and also distributed among the owners.
Normative
The capitalization ratio is usually correlated with the normative value. In most economic sources, it is defined as 1. That is, the balance sheet liability should be 50%
Own sources and 50% of borrowed funds.
However, the experience of economically developed countries indicates a rather successful functioning of companies with this indicator of 1.5. Paid sources of financing they have determined 60% of the total balance sheet structure.
It all depends on the scope of the company, its main competitors, as well as risk assessment. Such indicators as production profitability, capital intensity and size of the company, its period of existence and reputation in the product market matter.
Who cares about the metric?
The determination of the capitalization ratio must be known to investors, creditors and governing bodies of the enterprise.
Investors who are the founders of the company and whose capital is called equity in the balance sheet are interested in the growth of this indicator, since the increase in capitalization makes it possible to quantitatively and qualitatively improve production activities. However, financial analysts must calculate to what extent it is advisable to increase funds by attracting borrowed funds.
Lenders also consider the presented indicator in the decision-making process on the provision of their funds. The lower the overall capitalization ratio, the higher the financial stability of the enterprise. This is a signal of advisability for lenders to lend their funds.
Income capitalization
In order to correlate the dependence of net profit on borrowed and own funds, the presented indicator should be considered in the analysis from the position of income capitalization. 
This allows you to find out such techniques as financial ratio leverage, risk, attraction, self-financing, etc. These are all synonyms. Depending on the point of view from which the company is valued, its total income can be calculated taking into account cash flow. The balance sheet or net profit of the enterprise is determined using the rate of return. It will allow you to evaluate the activity of growth in the volume of its income to the balance sheet or net profit.
Calculation of capitalization of income
The capitalization coefficient of income in the absence of changes in production volumes in dynamics also remains unchanged in this case. It will be equal to the rate of return.
To calculate the presented indicator, the following formula is used:
Estimation of enterprise value = Adjusted profit flow / Capitalization ratio.
Adjustments are made in the field of taxation. Local or federal fees are eliminated from profits. If the company's income has a negative (close to zero) value, this indicator is not used for calculations. This approach makes it possible to assess the rate of return on investors and to correlate correctly the amount of equity and borrowed capital. And not from the position of the balance sheet income, but in terms of the company's net profit.
Advantages and disadvantages of the method
The calculation of the coefficient of capitalization of income has several advantages and disadvantages. Its negative aspects include the complexity of the process of preparing and collecting information. Also, this method is not suitable for enterprises new or in need of reorganization.
The advantages include the availability and simplicity of calculations, which allow you to clearly assess the activities of the company and market conditions. This is the most suitable assessment method. capital structure of enterprises having stable indicators of net profit or small rates of its increase.
However, if the activity of the enterprise or the scope of its activity is not stable, this method should not be applied.
Having become familiar with such a concept as a capitalization ratio, each financial analyst can use it to evaluate the company's performance. This will allow you to optimize the structure of sources of support activities from the position of the balance sheet income.Using the method of capitalization of income, this ratio is determined from the position of changes in the net profit of the organization.
