A financial ratio that measures the level of leverage used by a company, the equity ratio quantifies the proportion of the total assets that are financed by stockholders, and not creditors (or debt). The equity ratio only requires two inputs, owner's equity and total assets; both of which are found on a company's balance sheet.
Equity Ratio = Total Owner's Equity / Total Assets
Also known as the shareholder's equity ratio, there are two distinct schools of thought as to how to interpret the results of this metric.
Company A's balance sheet indicates total stockholder equity of $15,420,000 and total assets of $31,616,000. The equity ratio for Company A would be:
= $15,420,000 / $31,616,000, or 0.49