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


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