0 Equity Ratio

This is a very good ratio for an investor, if he is analyzing the possibility to invest. This ratio shows what amount of money he will get if the company will go bankrupt, because debt obligations for the banks should be covered and only after all other creditors, shareholders are taking their part. Higher ratio shows higher leverage and better position of shareholders, because larger amount of their funds will be financed. Lower ratio means that the company has a debt, and at first this obligation should be paid. The higher debt the lower equity ratio will be.
The needed level of ratio depends on the sector where the company is working at. If the sector is safe and the cash flows in the sector are stable, the level can vary from 40 to 60 per cent and the company still can be very attractive for the investors, but for less stable companies, whose results are more volatile depending on the stage of the economy or the seasonal changes, the equity ratio should be much higher to attract investors.
The company which has lover debt and higher equity ratio is always more attractive for the investor, because it gives him higher opportunity to earn money as dividends and shows lower possibility of the company to go bankrupt. The company with higher equity ratios shows higher possibilities of growth from inside financing. Investors like that share prices will grow from the money that are inside the company and not from the outsider financing source, which has priority for the money of the company.
But the debt for the company is not always bad as well. Some companies, that have low equity must get financing from banks if they want to make faster growth. So the investor must check whether the company is borrowing for growth or it is borrowing to make an injection to its balance or to shade some problems. If the company announced about some acquisition or expansion, one of the alternatives of borrowing is a bank loan, so this debt is used to raise revenues of the company and it will be given back after it creates higher value of the company for the investors.
Higher level of equity ratio means higher possible growth rates and better situation for the investor, but everything depends on the strategy of the company - whether it is growing or retiring, whether its sector is safe and popular or forgotten and unsuccessful. So the investor should analyze additional information before trusting on equity ratio and know the activities of the company very well, but if the ratio is almost equal to 1, it means that the company is profitable enough to be financed by itself and safe enough for the shareholders.