percentage of total capitalization represented by common stock. From a creditor's standpoint, a high ratio represents a margin of safety in the event of liquidation. From an investor's standpoint, a high ratio can mean a lack of leverage.
percentage of total capitalization represented by common stock. From a creditor's standpoint a high ratio represents a margin of safety in the event of liquidation. From an investor's standpoint, however, a high ratio can mean a lack of leverage. What the ratio should be depends largely on the stability of earnings. Electric utilities can operate with low ratios because their earnings are stable. As a general rule, when an industrial company's stock ratio is below 30%, analysts check on earnings stability and fixed charge coverage in bad times as well as good.
