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What Is Assets To Equity Ratio?

what is asset to equity ratio

Definition of Assets to Equity Ratio

  • The assets to equity ratio allow you to understand to what extent a business is funded by equity or debt.
  • The ratio measures the total assets in relation to total equity.
  • In the case of the assets to equity, the higher the ratio, the more debt a company holds.

What is the Formula for Assets to Equity Ratio?

  • To find this ratio, you would have to take the total assets and divide it by the total equity.

Total Assets  ÷ Total Equity

Assets to Equity Ratio in Practice

  • If Craftysales has assets worth $500,000,000 and has total equity of 225,000,000, then what is the asset to equity ratio?
  • 500,000,000  ÷ 225,000,000 = 2.22
  • If their previous assets to equity ratio were 2.50, then the 2.22 would show you that the company has reduced its dependence on equity.