Investor Glossary-asset/equity ratioInvestor Glossary-asset/equity ratioInvestor Glossary-asset/equity ratioInvestor Glossary-asset/equity ratioInsightful stock market charts - Click here
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Asset/equity Ratio

The HTML to link to this page

The asset/equity ratio shows the relationship of the total assets of the firm to the portion owned by shareholders, also known as owners equity. The asset/equity ratio indicates a company's leverage, the amount of debt used to finance the firm. A company's asset/equity ratio depends importantly on the industry in which it operates, its size, economic conditions, and other factors. There is no ideal asset/equity ratio. A relatively high asset/equity ratio may indicate the company has taken on substantial debt merely to remain in business. But a high asset/equity ratio can also point to a company that is wisely "trading on the equity." In other words, there is a high asset/equity ratio because the return on borrowed capital exceeds the cost of that capital. At some point, however, an asset/equity ratio can reach unsustainable levels, as the additional debt ratchets up interest costs and the deteriorating financial position puts the firm in jeopardy. By the same token, a low asset/equity ratio can indicate a strong firm that needs no debt, or an overly conservative company, foolishly foregoing business opportunities.

Rate this asset/equity ratio definition...

Learn about investing with the Investor Glossary Term of the Day

Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.

Popular Terms: option premium, command economy, retained earnings, deferred revenue, risk management, 401a, dividends payable, 1031 exchange, Zero Cost Collar, annual return, covered put, per diem, 144a, APR, liquidity ratio, FTSE, current ratio, average price per share, reverse mortgage, real GDP, limit order, stock market close, stock split, wholly-owned subsidiary, deferred tax, in escrow, labor relations, required rate of return, debt service coverage, FICO score, implied volatility, EBITDA, quality assurance, cancelled check, minority interest, margin rate, balance sheet, ex-dividend, class C shares, irrevocable trust, open position, 1035 exchange, phantom income, ex-dividend date, inflation, diluted share, VIX, Key Rate Duration, LIBOR

Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2015 Investor Glossary - All rights reserved - Terms of Use