Equity to Fixed Assets Ratio (EAR)


What is the Equity Asset ratio ?


The Equity-Asset-ratio (EAR) is a KPI indicator for any company's structure of capital which takes its values from the Covering margin and compares them by dividing them and providing a measure in percentage terms over the company's ability to cover fixed investments (fixed assets) with its own means (equity). 

As a fact of the matter, this KPI is a ratio which expresses in percentage terms the enterprise’s ability to cover fixed investments with its equity capital, and, it expresses the enterprise’s soundness to self-finance the long-term investments (tangible and intangible fixed assets) in an autonomous and independent way without the need to resort to external funding sources.


How to calculate the Equity Asset ratio ?


As it is visible, this ratio derives from two parameters which are reported in the Balance sheet and are of patrimonial nature. This is why the EAR express the first deep learning for the solidity of a company and therefore its ability to self-finance fixed investments (fixed assets) in an autonomous and independent manner without resorting to external sources of financing. 




It defines whether the level of fixed assets (investments) in that enterprise are covered by permanent resources or whether the company resorts to sources of financing to cover the fixed investments used for the exercise of the activity.

On a Credit Risk Management perspective it defines whether the level of fixed assets (investments) is covered by long term resources or whether the company instead is subject to financial stress. therefore the company's capital solidity on a long term perspective.




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