Shareholder Equity Ratio

Definition of ‘Shareholder Equity Ratio’


A ratio used to help determine how much shareholders would receive in the event of a company-wide liquidation. The ratio, expressed as a percentage, is calculated by dividing total shareholders’ equity by total assets of the firm, and it represents the amount of assets on which shareholders have a residual claim. The figures used to calculate the ratio are taken from the company’s balance sheet.

Shareholder Equity Ratio

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For example, let’s say a company has a shareholder equity ratio of 45% and total assets of $500 million. This would mean that, in the event of liquidation, all shareholders would receive $225 million (45% * $500). The higher the ratio, the more shareholders may receive – and of course, the reverse holds true.

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