Equity Ratio is a term that indicates what proportion of the company’s assets is financed by shareholders’ equity. It is an additional ratio to Total Debt to Total Assets ratio and their sum should be approximately 1.
The indicator is one of balance sheet debt ratios (of long-term financial stability).
Equity Ratio = Equity / Assets
The ratio reaches values from the interval <0, 1>.
Use of the Equity ratio in practice: This indicator is one of the most important indicators of indebtedness for assessing enterprise’s financial situation. It is important especially for the creditors. It is very important its relation to profitability ratios.
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