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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:

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.

 
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