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Equity Ratios


The equity ratio is used to measure the proportion of the total assets that are financed by stockholders, and not creditors. It indicates the level of leverage used by a company.

The equity ratio can be calculated as follows:

    Total Owner's Equity / Total Assets

As long as the company earns a rate of return on assets that is greater than the interest rate paid to creditors, a low value obtained for the equity ratio will provide good results for stockholders.

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