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A measure rate at which investors will capitalize expected earnings in the coming years. This is measured by dividing the per share by the current price. Earnings price ratio is the same as the price earnings ratio. Also called earnings capitalization rate. Its P/E ratio measure include the experiences investors had with the current management in the past, the current condition in its finances, and other departmental areas, and the present and future economical. The advantage of the capitalization ratio is that it allows immediate comparison of prices of unlimited amount of stocks in relation to common earnings base. It helps investors price new equity securities. It gives a snapshot of the finances of the company without going through the technical details of accounting.

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Small-business owners often need to improve their capital ratios to offset or hedge against the need to quickly raise equity in an economic downturn. Because many small businesses are not publicly traded, raising capital quickly can be difficult. Improving the capital to expenditure ratio ensures that enough equity is available during an economic crisis, or the small business can use the additional equity to finance new growth. The capitalization ratio refers to the relationship between how much is spent per dollar earned. For example, for every dollar firm "X" earns, 95 percent of that dollar goes to expenses, in one form or another. Therefore, the capitalization ratio can be expressed as 1:05, or, for every dollar earned, 5 cents is capitalized. Have a question? Get an answer from a Personal Finance Professional now!

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