Question

A company has total stockholders' equity of $2,000,000 and total debt of $3,000,000. The equity ratio is: 40%. Can someone explain how to arrive at the 40%?

Answer 1

Total Debt/Liabilities	$               3,000,000
Total Stockholder's Equity	$               2,000,000
Total Stockholder's Equity & Liabilities or Total Assets	$               5,000,000
Equity Ratio =Total Stockholder's Equity / Total Assets
Equity Ratio =$2,000,000 / $5,000,000 =0.40 or 40%
The above answer is based on the accouting equation of:
Total Assets =Total Liabilities + Total Stockholder's Equity