Understand the Formula: The Asset-to-Equity Ratio is calculated by dividing total assets by shareholders’ equity, showing a company's financial leverage
Gather Financial Data: Collect total assets and total equity values from the company’s balance sheet for the relevant accounting period
Perform the Calculation: Divide total assets by shareholders’ equity to find the ratio. Higher values suggest more debt financing than equity funding
Interpret the Ratio: A higher ratio indicates higher financial risk, while a lower ratio shows stronger equity financing and lower dependence on debt
Compare Across Industry: Compare the ratio with industry standards to evaluate a company’s financial structure and risk relative to competitors