Equity Ratio Calculator

What this calculator does

A company's assets are financed from two places: money the owners put in and kept in, and money owed to everyone else. This calculator measures the first share as a percentage of the whole:

Equity ratio = Total equity ÷ Total assets × 100

The result is the proportion of the business that is genuinely owned rather than owed. It is one of the most direct solvency measures available, and because it is expressed as a share of the total, it carries a second meaning that the same information stated any other way tends to obscure.

The share of the company that is genuinely owned

An equity ratio of 40 percent says that of everything the company holds, buildings, stock, machinery, cash, receivables, forty percent has been paid for by the owners and sixty percent by lenders, suppliers and other creditors. If the business were wound up tomorrow and every asset fetched exactly its book value, the creditors would take their sixty and the owners would keep their forty.

The scale is bounded and easy to read. One hundred percent means a company with no liabilities whatsoever, funded entirely by its owners. Numbers in the seventies and eighties describe a conservatively financed business. Numbers in the teens describe one where the owners have contributed a small slice and the rest of the balance sheet belongs, in substance, to other people. Zero would mean the owners have nothing left at all.

What is worth resisting is the instinct that higher is simply better. A very high equity ratio means safety, but it can also mean a company is refusing to use cheap borrowing that could fund profitable growth, and owner capital is generally the more expensive form of finance. What the ratio really tells you is which risk the company has chosen: the risk of owing money, or the risk of growing slowly.

Two figures, and what counts as equity

1. Total shareholders' equity. The equity section total: share capital, share premium, reserves, and accumulated retained earnings, less any treasury shares.
2. Total assets. The total assets line from the same balance sheet.

Two things worth knowing about the equity figure. It is a book value, not a market value, so it reflects what assets cost and how they have been carried since, not what they would fetch today. And it can be dragged down by things that have nothing to do with trading: large share buybacks reduce equity, as do accumulated losses, which is why some perfectly sound businesses show thin equity ratios and some troubled ones can show negative equity entirely.

Press Calculate for the percentage, or Reset to clear the fields.

Splitting a balance sheet in two

Take a company with total assets of 500,000,000 and equity of 200,000,000.

• Equity ratio: 200,000,000 ÷ 500,000,000 = 40 percent
• Which means the remaining 60 percent of assets is financed by liabilities

That second figure is the debt-to-assets ratio, and you did not need to calculate it because the two always add to one hundred. That is the quiet convenience of this ratio: one number gives you the entire financing split of the business. If equity is 80 percent, debt is 20. If equity is 15 percent, debt is 85. There is nowhere else for the funding to come from.

The ratio is also a measure of how much can go wrong

Here is the reading that makes this number useful to a lender rather than merely descriptive. Equity is the part of the balance sheet that absorbs losses first. When assets fall in value, the loss comes out of equity while the liabilities stay exactly where they are, because debts are contracts and do not shrink because business is bad.

So the equity ratio doubles as a measure of how much the asset side can deteriorate before creditors start to be at risk. At 40 percent, the company's assets could lose two-fifths of their value and there would still, on paper, be enough to cover everything owed. At 10 percent, a decline of just over a tenth wipes out the owners entirely and begins eating into what lenders are owed.

That is why banks and bond investors care about this figure and why it turns up in loan covenants. They are not asking how profitable the company is. They are asking how far it can fall before their own money is in question, and this single percentage answers that directly. It is also why the same ratio that looks like caution to a shareholder looks like protection to a lender: they are reading the same number from opposite sides of the balance sheet.

The same fact as the equity multiplier, told the other way round

There is a companion tool on this site, the equity multiplier calculator, which takes the same two figures and divides them the other way. It is worth being plain that the two are mathematically the same statement, since one is simply the reciprocal of the other. An equity ratio of 40 percent is an equity multiplier of 2.5. An equity ratio of 80 percent is a multiplier of 1.25. Neither contains information the other lacks.

What differs is what each makes easy to see. Expressed as a share, the equity ratio invites you to think about proportions and cushions: how much of this is ours, how far can values fall. Expressed as a multiple, the equity multiplier invites you to think about amplification: how much asset base each unit of owner money is carrying, and how hard leverage will magnify returns in either direction.

In practice, reach for this ratio when the question is about solvency, security and how the balance sheet is funded, and for the multiplier when the question is about returns, particularly when you are unpicking why a company's return on equity looks the way it does. Same arithmetic, different questions.

Questions people ask

What is a healthy equity ratio?

It varies widely by industry. Capital-intensive and financial businesses run much lower ratios than software or services firms. Compare against the sector and against the company's own trend rather than a universal threshold.

How do I get the debt ratio from this?

Subtract from one hundred. The two always sum to one hundred percent, since assets are funded entirely by equity and liabilities.

Is a very high equity ratio always good?

It is safe, but not automatically optimal. It may mean the company is not using affordable borrowing to fund growth, and equity capital is generally more expensive than debt.

Can the ratio be negative?

Yes, if accumulated losses or large buybacks push equity below zero, meaning liabilities exceed assets. This calculator expects a non-negative equity figure, so that situation needs reading directly from the balance sheet.

References

Solvency ratios measure whether a company can meet its long-term obligations, and the relationship between what is financed by owners and what is financed by debt is central to that assessment. The debt-to-assets ratio, which shows how much of a company's assets were financed through debt, is the direct complement of the equity ratio, the two summing to the whole of the balance sheet.

1. OpenStax, Principles of Finance, 6.4 Solvency Ratios. https://openstax.org/books/principles-finance/pages/6-4-solvency-ratios
2. OpenStax, Principles of Accounting, Volume 1: Financial Accounting, Appendix A: Financial Statement Analysis. https://openstax.org/books/principles-financial-accounting/pages/a-financial-statement-analysis