Assets To Equity Ratio

Calculation

The assets to equity ratio is calculated by dividing a company’s total assets by total shareholders’ equity, both found on the balance sheet.

Interpretation

The assets to equity ratio is considered a solvency ratio and financial leverage ratio that gives an idea about whether a company finances its assets more by issuing debt or equity.

A ratio above 2 means that a company finances its assets more with debt than equity, which could make it a more risky investment. This can be explained with the accounting equation:

Total shareholders’ equity = total assets – total liabilities

	Less risky	Medium risk	More risky
Shareholders’ Equity	$75	$50	$20
Total Assets	$100	$100	$100
Total Liabilities	$25	$50	$80
Assets to Equity Ratio	1.33	1	5