Current Ratio – Formula, Meaning, Assumptions and Interpretations
February 12, 2025
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The press releases by the United States oil companies will have you believe that fracking is the best thing that has been discovered since “fire”! The newspapers are full of praise for the new technique and how it is likely to bring back the glorious days when America was self-reliant with regards to energy. However, […]
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The study of financial management is imperative for anyone trying to make a career in the industry. However, traditional financial management helps to make short-term decisions. For example, the main purpose of financial management is to guide corporations about making three decisions viz. the investment decision, the financing decision as well as the dividend decision. […]
The primary function of investment banks is to help their clients raise equity capital. This is often done by initial public offerings. This is where investment banks provide their biggest service i.e., underwriting. Most people have a basic understanding of underwriting. They know that when an investment bank underwrites a share issue, they guarantee to […]
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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