Equity Ratio

The Equity Ratio is a good indicator of the level of leverage used by a company.  The Equity Ratio measures the proportion of the total assets that are financed by stockholders, and not creditors.

The calculation of Equity Ratio is as follows:

Total Owner's Equity / Total Assets

A low equity ratio will produce good results for stockholders, as long as the company earns a rate of return on assets that is greater than the interest rate paid to creditors.