Proprietary ratio shows the total assets of a company which are financed by proprietors’ funds. This ratio is also known as equity ratio. It helps to determine the financial strength of a company & is useful for creditors to assess the ratio of shareholders’ funds employed out of total assets of the company.
Proprietors’ funds are also known as shareholders’ funds.
Formula of Proprietary Ratio
Proprietary Ratio = Shareholders Funds/Total Asset
Shareholders Funds = Share Capital (Equity + Preference) + Reserve & Surplus
Total Asset + Current Asset + Non-Current Asset (Net of Depreciation)
Example how to calculate Proprietary Ratio
i.e. 75% of total assets of the company are financed by proprietors’ funds