Equity to Fixed Assets Ratio
Equity to Fixed Assets Ratio = Equity / Total Fixed Assets
The equity to fixed assets ratio shows analysts the relative exposure of shareholders and debt holders to the fixed assets of the firm. Thus, if the equity to fixed assets ratio is 0.9, this means that shareholders have financed 90% of the fixed assets of the company. The remaining 10% as well as current assets and investments have all been financed by debt holders.
There is an implicit assumption that the number of shares outstanding has remained unchanged. This is because the ratio measures the total amount of equity. The total amount of equity can be increased by issuing shares at lower prices to the public or to the promoters. However, this may not be a desirable scenario since more shares means a loss to individual shareholders.
The equity to fixed assets ratio is used by a variety of stakeholders for different purposes. The common interpretations that are drawn based on this ratio have been listed below:
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