How to Calculate Equity Ratio

Definition: Equity Ratio measures the relative proportion of equity used to finance the company's assets.

Formula:
Equity Ratio = Owners Equity / Total Assets

Learn how to calculate the ratio with the following examples:

Example 1:
ABC Company has $700,000 in total assets and $200,000 in debt and loans, then:
The shareholders' equity = Total Assets - Total Liabilities = 700,000 - 200,000 = $500,000
Equity Ratio = 500,000 / 700,000 = 0.7143 = 71.43%

Example 2:
Calculate the equity ratio, given the following data:
Fixed assets $600,000
Current assets $300,000
Common Equity $250,000
Preferred Equity $100,000
Retained Profits $80,000
Share Premium $20,000

Solution:
Total Assets = Fixed assets + Current assets = 600,000 + 300,000 = $900,000
Total Equity = Common Equity + Preferred Equity + Retained Profits + Share Premium = 250,000 + 100,000 + 80,000 + 20,000 = $450,000
Equity Ratio = 450,000 / 900,000 = 0.5 = 50%

* Next: Debt to Equity 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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