Solvency Ratios: Proprietary Ratio

The proprietary ratio assesses the proportion of a company's total assets financed by shareholder equity.

This ratio is important as it indicates a company's level of financial risk by showing how much of its assets are funded by shareholders' equity versus liabilities.

Green Innovations has been operational for five years and is considering expansion.

The company's financial health is essential for securing potential investments and loans. To assess its financial stability, the finance team analyzes its proprietary ratio.

The company's total assets are one million dollars, and the Shareholder Equity is six hundred thousand dollars. So, the proprietary ratio is calculated as zero point six using the formula.

A proprietary ratio of zero point six indicates that sixty percent of Green Innovations' assets are financed through shareholder equity.

This high proportion suggests a strong equity base, which reduces financial risk and reliance on external debts.

The financial ratio analysis shows that Green Innovations is in a favorable position to approach investors or banks for the additional funding required for expansion.