Enter the capital adequacy ratio, total capital, and risk-weighted assets into the calculator to determine the missing variable.
Related Calculators
- Solvency Ratio Calculator
- Efficiency Ratio Calculator
- Days Of Cash On Hand Calculator
- Bank Guarantee Cost Calculator
- All Business Calculators
Capital Adequacy Ratio Formula
The following formula is used to calculate the capital adequacy ratio for a given set of financial values.
CAR = (TC / RWA) * 100
Variables:
- CAR is the capital adequacy ratio (%)
- TC is the total capital
- RWA is the risk-weighted assets
To calculate the capital adequacy ratio, divide the total capital by the risk-weighted assets and multiply the result by 100 to get the percentage.
What is Capital Adequacy Ratio?
The capital adequacy ratio (CAR) is a measure of a bank’s capital, expressed as a percentage of its risk-weighted assets. It is used to protect depositors and promote the stability and efficiency of financial systems around the world. CAR is a crucial metric for banks as it ensures that they have enough capital to absorb potential losses and continue operating during financial stress. The ratio is calculated by dividing the bank’s total capital by its risk-weighted assets and then multiplying by 100 to get a percentage. A higher CAR indicates a more stable and secure bank.
How to Calculate Capital Adequacy Ratio?
The following steps outline how to calculate the Capital Adequacy Ratio.
- First, determine the total capital (TC) of the bank.
- Next, determine the risk-weighted assets (RWA) of the bank.
- Next, calculate the capital adequacy ratio using the formula CAR = (TC / RWA) * 100.
- Finally, calculate the Capital Adequacy Ratio.
- After inserting the values and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Total Capital (TC) = 1,000,000
Risk-Weighted Assets (RWA) = 5,000,000