The equity ratio is the financial ratio showing the relative proportion of the equity used to finance the company's assets. These two components are often taken from a company's balance sheet or a statement of financial position (called book value), but the ratio can also be calculated using market value for both, if the company's equity is publicly traded.
The equity ratio is a very general financial ratios, especially in Central Europe and Japan, while in the US the debt to equity ratio is more commonly used in financial statements (research).
The formula for calculating the D/E ratio can be represented in the following ways: Debt - Equity Ratio = Total Liabilities/Equity Equity This result can often be expressed as a number or as a percentage. This form of D/E is often referred to as risk or gearing.
Video Equity ratio
Interpretation
Equity ratio is a good indicator of the level of leverage used by the company. The Equity ratio measures the proportion of total assets financed by shareholders, compared to creditors. A low equity ratio will produce good results for shareholders as long as the firm obtains a higher return on assets than the interest rate paid to creditors.
Maps Equity ratio
References
Source of the article : Wikipedia
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