Equity Ratio Calculator
Measure the proportion of assets financed by shareholders' equity
| Ratio Range | Interpretation | Your Ratio | Status |
|---|---|---|---|
| Above 0.6 | Strong equity position | - | - |
| 0.4 - 0.6 | Moderate equity position | - | - |
| 0.2 - 0.4 | Low equity position | - | - |
| Below 0.2 | Very low equity position | - | - |
The Equity Ratio measures the proportion of a company's assets that are financed by shareholders' equity rather than debt. It indicates financial stability and the company's ability to withstand financial difficulties.
• Lower financial risk
• Greater financial stability
• Easier access to credit
• Better ability to weather downturns
• Higher financial risk
• Potential solvency issues
• Higher interest costs
• Reduced financial flexibility
A Equity Ratio Calculator helps investors and analysts measure how much of a company's assets are financed by shareholders' equity rather than debt. This fundamental solvency ratio reveals the financial cushion available to absorb potential losses.
How the Equity Ratio Calculator Works
Formula
Where:
Shareholders' Equity = Common stock + retained earnings + other comprehensive income
Total Assets = Current + non-current assets
Example Calculation
| Financial Data | Amount ($M) |
|---|---|
| Total Shareholders' Equity | 75 |
| Total Assets | 200 |
| Equity Ratio | 37.5% (75 ÷ 200 × 100) |
Interpretation:
> 50%: Conservative capital structure (low debt)
30-50%: Balanced approach (typical for many industries)
< 30%: Aggressive leverage (high debt dependence)
< 10%: Potentially dangerous (common in banking)
Key Inputs Required
Shareholders' Equity (from balance sheet):
Common stock
Preferred stock
Retained earnings
Treasury stock (subtracted)
Total Assets:
Current assets (cash, inventory, receivables)
Non-current assets (PP&E, intangible assets)
Why Equity Ratio Matters
✅ Solvency Check - Measures protection against bankruptcy
✅ Credit Risk Assessment - Lenders evaluate loan terms based on this
✅ Investment Quality - Higher ratios often indicate financial stability
✅ Comparative Analysis - Helps evaluate companies within sectors
Industry Benchmarks
| Industry | Typical Equity Ratio | Reasoning |
|---|---|---|
| Technology | 50-70% | Asset-light, equity-financed growth |
| Utilities | 20-35% | Debt-financed infrastructure |
| Manufacturing | 35-50% | Moderate capital needs |
| Commercial Banking | 8-12% | Highly leveraged by nature |
How to Improve Your Equity Ratio
✔ Retain Earnings - Limit dividend payouts to grow equity
✔ Issue New Shares - Equity financing strengthens the ratio
✔ Reduce Assets - Sell underutilized property/equipment
✔ Pay Down Debt - Converts liabilities to equity through earnings
Special Considerations
⚠ Book Value vs Market Value - Equity ratios use book values which may differ significantly from market caps
⚠ Industry Norms - Capital-intensive sectors naturally have lower ratios
⚠ Growth Stage - Startups often have higher ratios than mature firms
Related Ratios
| Ratio | Formula | What It Measures |
|---|---|---|
| Debt Ratio | Total Debt ÷ Total Assets | Opposite perspective |
| Debt-to-Equity | Total Debt ÷ Total Equity | Capital structure balance |
| Equity Multiplier | Total Assets ÷ Total Equity | Financial leverage |
When to Calculate
Before applying for business loans
When considering dividend payments
During merger/acquisition evaluations
Quarterly for financial health monitoring
Final Thoughts
The equity ratio answers:
"What percentage of assets are truly owned by shareholders rather than creditors?"
Need help calculating yours? Share your equity and asset figures below! 💰📈