Equity ratio
In one sentenceEquity divided by total assets, showing the share of assets the owners financed with their own money, with the rest financed by liabilities.
Simply put
It is the other side of the debt ratio: if 60% of assets is financed by the owners, then 40% is financed by liabilities, and the total is always 100%.
A high ratio means a business less dependent on creditors and better able to withstand crises, but it may also mean the owners are not using financing to expand their business.
Worked example
A contracting establishment has equity of 1,500,000 SAR and total assets of 2,500,000 SAR.
Equity1,500,000 SAR
Total assets2,500,000 SAR
Debt ratio100% − 60% = 40%
Equity ratio = 1,500,000 ÷ 2,500,00060%
Formula: Equity ÷ total assets × 100
Don't confuse it with
Debt ratioThe debt ratio divides liabilities by assets, and the two ratios add up to 100%.