Capital International Indexes Market indexes maintained by Morgan Stanley that track major stock markets worldwide. Capital investment See: Capital expenditure. Capital lease A leaseobligation that has to be capitalized on the balance sheet. Capital loss The difference between the netcost of a security and the sales price, if the security is sold at a loss. Also used in a more general context to refer to the market for stocks, bonds, derivatives and other investments. Capital market Traditionally, this has referred to the market for trading long-termdebt instruments (those that mature in more than one year). That is, the market where capital is raised. More recently, capital markets is used in a more general context to refer to the market for stocks, bonds, derivatives and other investments. Capital market efficiency The degree to which the present asset price accurately reflects current information in the market place. See: Efficient market hypothesis. Capital market imperfections view The view that issuingdebt is generally valuable, but that the firm's optimal choice of capital structure involves various other views of capital structure ( net corporate/personal tax, agencycost, bankruptcy cost, and pecking order), that result from considerations of asymmetric information, asymmetric taxes, and transaction costs. Capital market line (CML) The line defined by every combination of the risk-free asset and the market portfolio. The line represents the risk premium you earn for taking on extra risk. Defined by the capital asset pricing model. Capital rationing Placing limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital, or by setting a maximum on the entire capital budget or parts of it. Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. Capital shares One of two types of shares in a dual-purpose investmentcompany, which entitle the holder to the appreciation or depreciation in the value of a portfolio, as well as the gains from trading in the portfolio. Antithesis of income shares. Capital stock Stock authorized by a firm'scharter and having par value, stated value, or no par value. The number and the value of issued shares are usually shown, together with the number of shares authorized, in the capital accounts section of the balance sheet. See: Common stock. Capital structure The makeup of the liabilities and stockholders'equity side of the balance sheet, especially the ratio of debt to equity and the mixture of short and longmaturities. Capital surplus Amounts of directly contributed equitycapital in excess of the par value. Capital turnover Calculated by dividing annual sales by average stockholderequity (net worth). The ratio indicates how much a company could grow its current capital investment level. Low capital turnover generally corresponds to high profit margins. Capitalization The debt and/or equity mix that funds a firm'sassets. Capitalization method A method of constructing a replicating portfolio in which the manager purchases a number of the most highly capitalized names in the stockindex in proportion to their capitalization. Capitalization rate The interest rate used to calculate the present value of a number of future payments.