What are the best tips to improve asset/equity ratio?

own capital is the percentage of the company owned by investors. It often consists of ordinary shares, preferred stocks and bonds. The asset/equity ratio reveals the percentage of assets that are financed from their own capital. A high percentage may reveal an unhealthy situation and the company's inability to fulfill its obligations to shareholders. Some of the best methods to improve asset/equity ratio are to reduce debt and increase the value of the company's assets. This can be achieved by achieving higher sales and net profit. Even an increase in the amount of stocks holding long -term assets can also improve the ratio if purchases are not strongly financed.

The higher sales volume can increase the current assets when the company decides to maintain a high cash balance or reinvesting profits to capital equipment. Assets contribute to the liquidity of the company and the ability to repay the debt. Current assets can usually be converted to cash fastEven than long -term assets. For example, the stocks a company deposited in a warehouse could be sold within a few weeks, while the building can take a year or longer than sells.

The ratio can also be improved by reducing the amount of equity or liabilities owed to investors. Because bonds are sometimes considered to be a less desirable form of equity, some companies limit the number of bonds they issue. The share division is another method to increase the number of shares and at the same time reduce the amount owed to the share. In the division of shares, the number of potential investors increases, but the total amount of liability remains stable.

Companies often issue bonds and shares to acquire capital. Investors exchange cash entitled to the company's assets and earnings. The claim must be paid if the investor sells his shares or bonds. The capital itself is considered to be responsibility from the perspectiveCompany accounting, because there is basically future money owned by investors.

each industry has an asset/equity ratio. For example, the restaurant industry may have a standard ratio of 50 percent, while the consumer goods industry can have an average ratio of 75 percent. Most companies compare their individual assets/equity ratio to their industry as a scale. In order to improve the ratio, an increase in assets or decreases in capital is required.