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Investment Dictionary


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Equity to Asset Ratio

 

Equity to asset ratio measures company’s riskiness by comparing its equity to its assets. If this ratio is very low (lower than 0.3), it might mean that company may be at risk if conditions of the market would change negatively. If the ratio is very high (close to 1.0) it means company has very few debts and considered to be safe. 

 

However, the exact value of this ratio to be ‘safe’ or ‘at risk’ depends on many factors as sector of the company, cash flow stability, market conditions, debt structure and other. Normally, all companies seek for target capital structure which would maximize shareholders value.

 

Equity to asset ratio formula


Equity to asset ratio = Shareholders’ equity / Total assets

 

* Data is provided in the balance sheet of a company.

 

Basically, this ratio is no different from equity ratio. Another similar but reversal ratio is ‘asset to equity ratio’. 

 






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