What Is Assets 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.