The big formula: Total Assets / Total Shareholder's Equity.
Why does this ratio even matter? Well, it's about creditor risk, really. If a company had a huge asset total and a tiny equity total, then presumably, the assets were acquired by borrowing money...meaning that the company didn't "earn the right" to buy those assets through its own retained earnings.
If it had saved and scrimped rather than borrowed, then its equity total would be large, and it would be a lot closer to the total assets it had. See: Current Ratio. See: Days Sales Outstanding. See: Consolidated Balance Sheet.
Financial ratios get taken with the same number of grains of salt that comprised Lot's wife. They don't always mean much. But bean counters need beans to count so this ratio is one of the few, the proud, the tracked.
Related or Semi-related Video
Finance: What is a Consolidated Balance ...3 Views
Finance a la shmoop what is a consolidated balance sheet? okay people
this is a tale of two balance sheets it was the best of times right here and all [Lemonade stand balance sheet appears]
that cash no debt,, yeah and it was the worst of times and pretty much the
opposite and then one magical mergy day the two companies possessing these
two divergent balance sheets decided to you know merge it was a lovely ceremony [Bride and groom holding hands]
the bride wore white the groom stepped on the glass so then the balance sheets
were consolidated that is they were merged or combined or fully brought
together liabilities plus liabilities assets plus assets so the few dollars in
cash here in the worst of times balance sheet
well that was tacked on to the cash in the best of times balance sheet and the
same happened with long term liabilities and short and eventually after the
wedding night was you know consummated these two balance sheets had merged and [Man and girl standing by their lemonade stands]
consolidated and looked like this and that's what happens when companies merge
everything including their balance sheets consolidate let's hope they
generate lots of tiny cash flows and credits in the future....Mazel Tov
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