Technicals Stability Returns



Understanding Assets to Shareholders Equity


The Asset to Shareholders Equity Ratio measures how much the company's assets are financed using shareholder's equity instead of debt. In other words, it shows the portion of the assets that are financed by a company utilizing its shareholders' equity. The assets to shareholders equity ratio is inverse of the shareholder's equity ratio. That means it is calculated by dividing total assets by shareholders' equity.

The formula to derive Asset to Shareholders Equity Ratio

Interest Coverage


Total Assets - Total assets are the total number of assets owned by a person or company. Total assets are reported on a company's balance sheet.

Total Shareholders Equity - Shareholders Equity or Shareholders Fund is the amount of equity that belongs to the company's shareholders. It is found in the Company's Balance Sheet.

Example of Asset to Shareholders Equity: For the financial year, Zydus Wellness Limited reported total assets as Rs. 5666.43 Cr. and total shareholders equity as Rs.4567.79 Cr.
The value as per the formula (Total Assets / Shareholders Equity) is calculated as (5666.43 / 4567.79) = 1.24.


Key Highlights
Asset to shareholders equity ratio measures the portion of the company's assets that are financed by shareholders funds rather than using debts.

The asset to shareholders ratio is inverse of the shareholder's equity and it is computed as total assets divided by shareholders equity.

A low asset to shareholders equity ratio is considered good compared to a high ratio.


While looking at the Asset to Shareholders Equity Ratio, the following points should also take into consideration:
A low asset to shareholders equity ratio below two is considered good. It indicates that the company's large portion of assets is financed by equity.

A high asset to shareholders equity ratio indicates that the company used more debts than shareholders equity to pay for its assets.

Generally, investors prefer companies with a low asset to shareholder's equity rati

The importance of the asset to shareholder equity ratio is that it shows how much investors have a claim on the company's assets if it faces liquidation.


How to use Asset to Shareholder Equity Ratio effectively
Investors should look for a low asset to shareholders equity ratio below two.

Analyze the company's historical data for better analysis. If the asset to shareholders equity ratio is decreasing over the year is a plus point, but investors must check other factors behind it.

It is convenient to compare companies within the same industry to find the better stock as the asset to shareholders equity ratio can vary depending on the industry.

For better analysis, we cannot depend on one particular ratio. So use other financial metrics with Asset to Shareholders Equity Ratio like Shareholder's Equity Ratio, Debt to Assets, Return on Capital Employed (ROCE), etc.,


Range Indicator of Assets to Shareholders Equity Ratio

Range Indicator Comments
Below 0.5 Strong Bullish Almost Assets Are Financed By Equity
0.5 to 1 Bullish Mostly Assets Are Financed By Equity
1 to 2 Mild Bullish Slightly More Assets Are Financed By Equity
2 to 3 Neutral Assets Equally Financed By Equity And Debts
3 to 4 Mild Bearish Slightly More Assets Are Financed By Debt
4 to 5 Bearish Mostly Assets Are Financed by Debt
Above 5 Strong Bearish Almost Assets Are Financed By Debt