Equity = bookvalue/Total Assets
Equity relates a company's total assets to its liabilities.
As an investor, you want to know how much of the company's assets are financed with bookvalue and how much is financed using loans.
The key figure is used to see the company's long-term financial strength and ability to pay.
Things to keep in mind
- High equity is good because it shows that the company has good bookvalue.
- High equity is a sign that the company is stable, can cope with setbacks, and has an easier time securing future loans.
- Companies with low equity usually have large loans and little bookvalue.