Equity ratio
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The equity ratio is a financial ratio indicating the relative proportion of equity used to finance a company's assets. The two components are often taken from the firm's balance sheet or statement of financial position (so-called book value), but the ratio may also be calculated using market values for both, if the company's equities are publicly traded.
The equity ratio is especially in Central Europe a very common financial ratio while in the US the debt to equity ratio is more often used in financial (research) reports.
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[edit] Formula
Equity Ratio = Total Owner's Equity / Total Assets
[edit] Example
- Equity ratio=12% <=> (shareholder's equity / total assets) <=> (USD 79,180,000/USD 647,483,000)
"The Equity Ratio is a good indicator of the level of leverage used by a company. The Equity ratio measures the proportion of the total assets that are financed by stockholders and not creditors.
The calculation of equity ratio is:
A low equity ratio will produce good results for stockholders as long as the company earns a rate of return on assets that is greater than the interest rate paid to creditors."[1]
