Equity ratio

The equity ratio shows what proportion of total capital comes from own funds.

Calculation:

Equity ratio = equity ÷ total capital × 100

Interpretation:

• Over 40%: very soundly financed. Can weather crises well
• 20–40%: solid. Acceptable depending on the sector
• Under 20%: a lot of debt. Risky in crises or when interest rates rise
• Under 10%: very risky. Small losses can lead to insolvency

Sector differences:

• Banks: only 3–10% equity (high leverage, heavily regulated)
• Industry: 25–40% typical
• Tech companies: often 50%+ (little fixed assets needed)
• Property: 10–30% (a lot of debt financing)

For private investors: a high equity ratio = the company can survive crises. Look for a solid balance sheet when choosing shares.

For private individuals: the same logic applies! Little debt + plenty of equity (assets) = financial stability.