Equity-to-Asset Ratio: Definition, Formula, Importance

What Is the Equity-to-Asset Ratio?

By Kristi Waterworth – Updated Dec 7, 2025 at 2:14 AM EST

Key Points

Equity-to-asset ratio indicates how much of a company is owned versus debt-leveraged.
To calculate, divide total equity by total assets; e.g., $4M/$5M = 80%.
Compare ratio to industry to assess company's financial health relative to peers.

When you're evaluating a potential company as an investment, the balance sheet matters, but it can also get very complicated. A simple way to look at a company's debt obligations is to examine its equity-to-asset ratio, a measure that can tell you the extent of a company's leverage. Read on to learn more about this means of judging a company's financial fitness.

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Balance sheet with a fountain pen and glasses lying on top. — Image source: Getty Images.

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Financial Leverage

Amplifying returns or risks through borrowing funds to invest, increasing potential gains or losses beyond the initial investment.

When you know that your company has 80% of its assets free of debt, you also know that 20% are encumbered. This can help you better plan if the ship starts to sink. Stockholders are often among the last to be compensated during a bankruptcy sale since debtors are generally first in line and may consume a great deal of the remaining value of the company while satisfying debt. If you're in doubt, choosing companies with high equity-to-asset ratios means you're more likely to have some kind of return -- even during bankruptcy -- than you would from a company with a very low equity-to-asset ratio.

However, this has to be a calculation you perform while looking at other things, too. There are no financial ratios that exist inside a vacuum. A company is generally a mix of good and bad, and you have to decide if the good outweighs the bad after all kinds of numbers are examined, including the equity-to-asset ratio.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

How do you calculate the equity-to-asset ratio?

The equity-to-asset ratio is very easy to calculate. Since equity is the difference between the value of the company's assets and liabilities, you'll first need both of those pieces of information. You'll be looking for total assets and total liabilities, both current and non-current.

To figure the equity-to-asset ratio, simply divide the value of your equity by the value of your assets. Equity is calculated by subtracting the total liability from the total value of your assets. For example, if you have $5 million in assets and $1 million in liabilities, you have $4 million in equity.

In this case, the formula for equity-to-assets in this case would be $4 million divided by $5 million, or 80%.

That looks like this.

First, calculating equity:

Equity = Total assets - total liabilities

= $5 million - $1 million = $4 million

Then calculating equity-to-assets ratio:

Equity-to-assets ratio = (Total equity / Total assets) x 100

= ($4 million / $5 million) x 100 = 80%

Interpreting the equity-to-asset ratio

So you have the number now, but the ratio by itself doesn't really mean anything. Just because shareholders own 80% of the company's equity doesn't necessarily mean that's good; it might be terrible if the other companies in the industry tend to have equity-to-asset ratios around 90%. This is where investing gets tricky -- there are lots of ratios like this where you have to calculate the number not only for your company, but also for other companies like it.

But what does that mean? This is a question I had when I was first trying to learn how to compare companies. Often, companies have very notable rivals, which makes it a lot easier. Think Coca-Cola (KO +1.32%) vs. PepsiCo (PEP +1.29%), for example. But in other cases, they don't. In these situations, you can only do your best and try to perform the same calculation across the industry as consistently as possible. Compare companies that do one thing very well with similar companies that also do the same thing very well, and compare those that do many things that line up with others doing the same.

It'll never be perfect because nothing about investing is that mechanical; otherwise, it wouldn't be so tricky to get it right every single time. But the better you understand the company you're looking at, as well as its competition, the better you can judge how well it's really performing.

What Is the Equity-to-Asset Ratio?

Key Points