Term · Balance Sheet & Debt
Equity Ratio
In briefThe equity ratio indicates the share of equity in total assets and is an indicator of financial stability. For small caps with limited capital-market access, it is often the most important buffer against refinancing problems.
Definition
The share of equity in total assets; an indicator of financial stability.
How it is calculated
Formula. Equity ratio = equity ÷ total assets × 100.
Why it matters for small caps
For smaller listed companies with limited capital-market access, the equity ratio is often the most important buffer against refinancing problems.
Common misreadings
- A high ratio is sweepingly judged as 'good,' even though it can also indicate unused growth potential due to a lack of debt financing.
In the process
Frequently asked
What is the equity ratio?
It measures how large the portion of assets financed by equity is. It is stated as a percentage of total assets.
What is the equity ratio used for?
It shows how resilient a company is to losses and financing bottlenecks. A higher value generally means more stability.
Why is a very high equity ratio not automatically good?
It can indicate unused potential when cheap debt financing is deliberately avoided. The appropriate level depends on the business model.
Related terms
Sources
Primary
IFRS Foundation – IFRS 7 Financial Instruments: Disclosures
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-7-financial-instruments-disclosures/
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-7-financial-instruments-disclosures/
Methodology
IFRS Foundation – IFRS Accounting Standards Navigator
https://www.ifrs.org/issued-standards/list-of-standards/
https://www.ifrs.org/issued-standards/list-of-standards/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.