MythosHF

When yuo capitalize, you inicrease your assets and your NI, which increase Equity. with the accoutnign equation, A = L + E, so we know A>E. That means that when you capitalize an asset, the equity will change by a higher percent than assets. In the leverage ratio A/E, E changes by a higher percentage than A so the denominator has a bigger percent change, meaning it has a bigger weight on the ratio. This will decrease the ratio.