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Let’s go a bit further: Imagine two companies, both worth $1 million in assets. Company A has $800,000 in debt and $200,000 in equity. Company B has $200,000 in debt and $800,000 in equity. Which company do you think is in a better position? Company B, right? Because it has a much higher capital ratio. That means it’s less reliant on borrowing and more reliant on its own funds. Generally, investors and lenders prefer companies with higher capital ratios because they represent lower risk. Of course, all this depends on the type of business too. Some industries can handle more debt than others. The capital ratio is just one piece of the puzzle, but it’s a really important one.
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* ***Manage your resources***: Ammo and support weapons are limited. Use them wisely.