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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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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