What is the ratio of equity?

The ratio of equity is a calculation or financial ratio that determines the amount of lever effect that the company must use. In fact, it is usually referred to as the ratio of debt/equity or debt to its own capital because it measures the amount of the company's obligations compared to its own shareholders' capital. Another way to look at your own capital is to consider it a share of the debt used by the company to finance the assets of the company. In general, the equation is used for calculation. A similar calculation includes only long -term debt as part of liabilities rather than total liabilities of long -term and short -term). In other circumstances, however, it can also be applied to personal financial situations. In this case, the equation calculates the amount of personal debt financed by the individual's personnel assets.

Since the ratio of equity is measurement, whether the measurement is high or low is the sign of the company's financial status. For example, a high debt ratio to its own capital indicates thatThe company funds its growth with a large amount of debt. In general, the fall of the company with a high ratio of equity is that the company's earnings are fluctuating. Above all, the fluctuation is caused by the interest costs incurred by the company from the financing of the debt.

However, the high capital ratio does not automatically mean that the company's income is low. In fact, the opposite tends to be true. For example, companies that finance the increase in debt operations have the ability to generate higher income than if they had no money to finance different people and resources needed to increase operations.

When Earnings increases for business, it also increases income for shareholders. This is because the income for the company increases, but the number of shareholders remains the same. This causes an increase in the available funds to be distributed and distributed between the same number of shareholders, thusE increases the income of shareholders.

The industry that the company is involved can also affect the ratio. For example, car manufacturers tend to have a high ratio. Computer companies on the Flip side tend to have a low ratio.