Wednesday, September 30

Equity Ratio Formula

The equity ratio is an investment leverage or solvency ratio that steps the number of shares that are funded by taxpayers’ investments by comparing the total equity in the company to the total shares.

The equity ratio highlights two important financial concepts of a solvent and sustainable business. The before all else component shows how many of the total company shares are owned outright by the investors. In other words, after all of the liabilities are paid off, the investors will end up with the remaining shares.

The second component inversely shows how leveraged the company is with debt. The equity ratio measures how many of a firm’s shares were financed by investors. In other words, this is the investors’ stake in the business. That is what they’re on the hook to get. The reverse of the calculation indicates the number of shares which were funded by debt. Businesses with greater equity ratios reveal new investors and lenders that traders believe in the business and would be happy to fund it using their investments.

Formula

The equity ratio is calculated by dividing total fairness by total shares. The two of these numbers really incorporate each of the reports in that class. To put it differently, each of the shares and equity recorded on the balance sheet are contained from the equity ratio calculation.

Equity Ratio