Asset to Equity Ratio Analysis

Definition: Asset to Equity Ratio is used as a measure of the company's leverage and long-term solvency. It compares total assets to total shareholder equity.

Formula:
Asset to Equity Ratio = Assets / Equity

Example 1:
TT Ltd has total assets of $20 million and its shareholder equity is $25 million, then the asset/equity ratio would be: 20 million / 25 million = 0.8

Example 2:
MOU Ltd has the following data:
Fixed assets $500,000
Current assets $400,000
Common Equity $300,000
Preferred Equity $150,000
Retained Earnings $100,000
Share Premium $50,000
Calculate the Asset to Equity Ratio.

Solution:
Total Assets = 500,000 + 400,000 = $900,000
Total Equity = Common Equity + Preferred Equity + Retained Earnings + Share Premium = 300,000 + 150,000 + 100,000 + 50,000 = $600,000
Asset to Equity Ratio = 900,000 / 600,000 = 1.5

* Next: Cash Asset Ratio Formula & Example
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