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VMC: What Is Assets To Equity Ratio?

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Definition of Assets to Equity Ratio

  • The assets to equity ratio allow you to understand to what extent a business is funded by equity or debt.
  • The ratio measures the total assets in relation to total equity.
  • In the case of the assets to equity, the higher the ratio, the more debt a company holds.

What is the Formula for Assets to Equity Ratio?

  • To find this ratio, you would have to take the total assets and divide it by the total equity.

Total Assets ÷ Total Equity

Assets to Equity Ratio in Practice

  • If Craftysales has assets worth $500,000,000 and has total equity of 225,000,000, then what is the asset to equity ratio?
  • 500,000,000  ÷ 225,000,000 = 2.22
  • If their previous assets to equity ratio were 2.50, then the 2.22 would show you that the company has reduced its dependence on equity.

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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.