Method of calculation
This ratio is crucial for the assessment of compnay's creditworthiness, since it informs how many times the total of liabilities is greater than the value of equity (the amount corresponding to 1 zl of equity). So the ratio defines the level of total liabilities coverage with the use of equity (which among other things plays a warranty role, i.e. it guarantees the coverage of company's liabilities). It is worth to complement the assessment with the analysis of long-term equity debt ratios: bank loans to equity and long-term bank loans to equity ratios.
- Ratio's values above 100% indicate large influence of foreign capital on the equity.
- When assessing the changes in ratio's value over time (over few periods):
- the increase of ratio's value is interpreted as a deterioration of company's creditworthiness (resulting from the increase of debt level),
- the decrease of ratio's value is respectively interpreted as an improvement of company's creditworthiness.