The Equity to Asset Ratio Calculator is a financial analysis tool used to measure how much of a company’s total assets are finance by shareholders’ equity. It helps determine the financial structure of a business and assesses how reliant it is on debt. A higher ratio suggests a stronger, more self-sustaining business with less financial risk.
Formula of Equity To Asset Ratio Calculator
Equity to Asset Ratio = Shareholders’ Equity / Total Assets
This ratio expresses the proportion of a company’s assets that are fund by the owner’s or shareholders’ equity, instead of borrowed funds.
Detailed Breakdown
Shareholders’ Equity
This is the residual interest in the company’s assets after deducting liabilities. It includes common stock, retained earnings, and additional paid-in capital.
Total Assets
This is the sum of everything the company owns or controls, both current (like cash, inventory) and non-current (like property, equipment).
Equity = Total Assets − Total Liabilities
To find equity if not directly provided, subtract total liabilities from total assets.
Ratio Output
The result is a decimal or percentage. For example, a 0.60 (or 60%) equity to asset ratio means 60% of the company’s assets are finance through equity.
Table of Common Financial Terms and Ratio Interpretations
| Term | Description |
|---|---|
| Shareholders’ Equity | Ownership value after liabilities are paid |
| Total Assets | All resources owned by the company |
| Total Liabilities | Debts or obligations the company must repay |
| Equity to Asset Ratio > 0.5 | Strong position; more than half of assets funded by equity |
| Equity to Asset Ratio < 0.3 | High risk; heavy reliance on debt financing |
This table provides a quick reference for understanding the meaning behind different ratio levels and financial terms.
Example of Equity To Asset Ratio Calculator
Let’s say a company has:
- Total Assets = $1,200,000
- Total Liabilities = $500,000
Step 1: Calculate Shareholders’ Equity
Equity = $1,200,000 − $500,000 = $700,000
Step 2: Apply the Formula
Equity to Asset Ratio = $700,000 / $1,200,000 = 0.583 or 58.3%
This means about 58.3% of the company’s assets are funded through equity, which is consider a stable financial position.
Most Common FAQs
A ratio above 50% is generally seen as healthy, indicating low financial risk and strong equity support.
It helps investors evaluate how much risk is associate with the company’s financial structure and how dependent the business is on borrow capital.
No. The maximum possible ratio is 1 (or 100%) which would mean all assets are fund purely by equity, with no liabilities.