Equity ratio
Encyclopedia
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.
"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."
Financial ratio
A financial ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization...
indicating the relative proportion of equity
Equity (finance)
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
used to finance a company's assets. The two components are often taken from the firm's balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
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
Debt to equity ratio
The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage...
is more often used in financial (research) reports.
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."