# Calculating ratios: capitalization

As far as non banking corporations are concerned following ratios determine the corporation to be adequately capitalized or undercapitalized:

(i) Working capital to total asset ratio

(ii) Retained earnings to total asset ratio

(iii) EBIT to total sales ratio

(iv) Market value of equity to book value of liabilities

(v) Sales by total asset

(vi) Time interest earned ratio

Altman Z score is used to find whether a corporation is adequately capitalized or undercapitalized. Altman z-score uses working capital to total asset ratio, retained earnings to total asset ratio, EBIT to total sales ratio, market value of equity to market value of liability ratio, and sales by total asset ratio to determine whether the corporation is well capitalized or undercapitalized. If Altman z score is between 1.81 to 2.99 the corporation is assumed to be adequately capitalized. If the score is more than 2.99 the corporation is assumed to be undercapitalized.

Times interest earned ratio helps to find out whether the corporation is capable enough to repay its interest also helps to find out whether the corporation is adequately capitalized or undercapitalized.

Please calculate the above ratios using the attached PDF document.

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#### Solution Preview

Please see the attached MS Word document for the solutions to the questions asked. Included are the formulas for calculating the listed ratios.

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Answer:

Altman Z score:

Working capital to Total Asset Ratio:

Working capital to total asset ratio=(Current Asset-Current ...

#### Solution Summary

Capitalization for calculating ratios are analyzed. The time interest earned ratios are provided.