Equity ratio: Difference between revisions
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:::<math>\mbox{Equity Ratio} = \frac{\mbox{Total Shareholder's Equity}}{\mbox{Total Assets}}</math> |
:::<math>\mbox{Equity Ratio} = \frac{\mbox{Total Shareholder's Equity}}{\mbox{Total Assets}}</math> |
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==Interpretation== |
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Equity Ratio is a good indicator of the level of [[Leverage (finance)|leverage]] used by a company. The Equity ratio measures the proportion of the total assets that are financed by stockholders and not creditors. 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.<ref>http://www.money-zine.com/Definitions/Investing-Dictionary/Equity-Ratio/</ref> |
Equity Ratio is a good indicator of the level of [[Leverage (finance)|leverage]] used by a company. The Equity ratio measures the proportion of the total assets that are financed by stockholders and not creditors. 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.<ref>http://www.money-zine.com/Definitions/Investing-Dictionary/Equity-Ratio/</ref> |
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Revision as of 14:31, 23 July 2013
 | This article needs additional citations for verification. (January 2008) |
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, especially in Central Europe, is a very common financial ratio while in the US the debt to equity ratio is more often used in financial (research) reports.
Formula
Interpretation
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. 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]