Q31. Assets to equity ratio
How is the assets to equity ratio calculated?
A31.
Assets to equity ratio
= Financial leverage ratio
= Average total assets / Average stockholders’ equity
[Entity 31-a]
Average total assets = $930,000
Average stockholders’ equity = $300,000
Assets to equity ratio
= $930,000 / $300,000 = 3.1
[Entity 31-b]
Average total assets = $950,000
Average stockholders’ equity = $380,000
Assets to equity ratio
= $950,000 / $380,000 = 2.5
[Note]
Assets to equity ratio is higher for Entity 31-a than for Entity 31-b.
Thus Entity 31-a is financially more leveraged than Entity 31-b.
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