Monday, March 29, 1999
What is meant by common stock ratio?
It is the percentage of total capitalization represented by common stock. Capitalization refers to a company's capital structure or financial framework, including long-term debt and common and preferred stock.
From a creditor's standpoint, a high common stock capitalization 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 lever age. What the ratio should be depends largely on the stability of earnings. As a general rule, when an industrial company's stock ratio is below 30 percent, analysts check on earnings stability as well as fixed expenses in bad times as well as good.
Have you seen an investment term you'd like to understand better? Write to Ursula Miller, The Cincinnati Enquirer, 312 Elm St., Cincinnati 45202. Phone: 768-8573.
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