capital ratio

In this case, the ratio of “capital” to “risky assets”. This is the amount of capital (equity) compared to the amount of risky assets. This ratio is usually used to determine the stability and strength of a firm or financial entity.

The way to calculate a simple capital ratio is just dividing “capital” by “Risky assets”. The most common capital ratio for banks is the capital Adequacy Ratio (CAR), or even capital to risk (Weighted) assets Ratio (CRAR), which measure the bank´s ability to take on a certain amount of loss and not go bankrupt, while at the same time complying with regulation on capital requirements.