Calculation: Equity to Value Ratio = Total Property Equity / Total Property Value
Ideal ratio: ratios below 0.5 are an indication of a heavily leveraged business
What is the Definition & Importance of ´Loan to Value Ratio´:
The equity to value ratio is a key metric for investors to use in order to assess how leveraged a business is. It is used to indicate the relative proportion of equity that is utilized to finance assets. The calculation can make investors understand to which extent a company is leveraged, making it an essential tool to manage investments.
Those who operate with an equity ratio of below 0.5 are considered leveraged companies, in contrast to companies with ratios above 0.5 which are considered conservative. Simply put, the more ´conservative´ the company is, the more they own funding from equity rather than debt.