The Equity Capital Ratio Calculator helps users determine how much of a company’s assets are finance by shareholders’ equity instead of debt. It is an essential indicator of financial strength and long-term solvency. A higher equity capital ratio shows that a company is relying more on its own funds rather than external borrowing, which can signal a lower financial risk.
Investors, lenders, and analysts use this ratio to assess a firm’s capital structure. It is also widely use in regulatory compliance, especially in banking and insurance sectors where minimum equity levels must be maintained.
Formula of Equity Capital Ratio Calculator
Equity Capital Ratio = Shareholders’ Equity / Total Assets
Detailed Breakdown
Shareholders’ Equity: This represents the owners’ claim after all liabilities are settle. It is calculate using the formula:
Shareholders’ Equity = Total Assets − Total Liabilities
Total Assets: This is the total value of everything the company owns, including cash, receivables, inventory, property, and equipment.
The ratio is express either as a decimal (e.g., 0.45) or as a percentage (e.g., 45%). A ratio closer to 1.0 means the company is mostly finance by equity, while a ratio closer to 0 indicates higher reliance on debt.
Reference Table for Equity Capital Ratio
| Total Assets ($) | Total Liabilities ($) | Shareholders’ Equity ($) | Equity Capital Ratio (%) |
|---|---|---|---|
| 1,000,000 | 600,000 | 400,000 | 40% |
| 2,000,000 | 500,000 | 1,500,000 | 75% |
| 750,000 | 675,000 | 75,000 | 10% |
| 1,200,000 | 1,200,000 | 0 | 0% |
| 3,000,000 | 1,000,000 | 2,000,000 | 66.7% |
This table gives a quick reference for users to compare company positions without manually recalculating.
Example of Equity Capital Ratio Calculator
Let’s say a company has total assets worth $1,500,000 and total liabilities of $900,000.
Step 1: Calculate Shareholders’ Equity
= $1,500,000 − $900,000
= $600,000
Step 2: Use the Equity Capital Ratio formula
= $600,000 / $1,500,000
= 0.4 or 40%
This result means 40% of the company’s assets are funded by equity, and the remaining 60% are funded by liabilities.
Most Common FAQs
Generally, a ratio above 50% is considered strong. However, ideal values vary by industry.
It shows how much of the business is owned outright versus financed with debt. Higher ratios suggest less financial risk.
Yes, it can happen when total liabilities exceed total assets, indicating financial distress or insolvency.