Proprietory ratio is the relationship between shareholders' fund and total assets of company. It is also called equity ratio or Shareholders' Funds to Total Assets Ratio or Net Worth to Total Assets Ratio. This ratio tells the percentage of Shareholders' which has been invested money in total assets.
Formula of Proprietary Ratio
If this ratio is 100%. It means whole money which was invested in the total assets, is of shareholders' invested capital. It this Ratio is just 10%, it means, company has just taken 10% of total purchased assets from shareholders. Other 90% money is from debt.
For Example
Total shareholders' fund is Rs. 4,00,000
Total Assets are Rs. 6,00,000
Proprietory Ratio is = 4,00,000/ 6,00,000 = 66.67 %
Interpretation of Proprietory Ratio
In above example, we find 66.67% as Proprietory ratio. It means Rs. 66.67 in total asset of Rs. 100 is of shareholders. Other money in total assets is of creditors.
Formula of Proprietary Ratio
If this ratio is 100%. It means whole money which was invested in the total assets, is of shareholders' invested capital. It this Ratio is just 10%, it means, company has just taken 10% of total purchased assets from shareholders. Other 90% money is from debt.
For Example
Total shareholders' fund is Rs. 4,00,000
Total Assets are Rs. 6,00,000
Proprietory Ratio is = 4,00,000/ 6,00,000 = 66.67 %
Interpretation of Proprietory Ratio
In above example, we find 66.67% as Proprietory ratio. It means Rs. 66.67 in total asset of Rs. 100 is of shareholders. Other money in total assets is of creditors.
Related : Management Accounting
