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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