Common Equity/Total Assets
Common equity to total assets divides the book value belonging to common shareholders by the company's total assets. It shows what share of the company's assets is financed by its common owners rather than by creditors, preferred shareholders, or minority investors in its subsidiaries.
A higher percentage means the company relies less on borrowed money and other obligations. The remainder of the assets is funded by liabilities and by any preferred or noncontrolling equity.
Both inputs come from the balance sheet in a company's SEC filings and the ratio is calculated from those reported figures. Total assets is tagged Assets in XBRL. Common equity starts from stockholders' equity attributable to the parent, tagged StockholdersEquity, which already excludes noncontrolling interest, and then subtracts the carrying value of any preferred stock. For companies with no preferred shares outstanding, common equity equals parent stockholders' equity.
Separating common equity matters most for banks, insurers, and utilities, which often have preferred stock in their capital structure. Preferred shareholders rank ahead of common holders in a liquidation and receive fixed dividends first, so counting preferred as equity overstates the cushion that common shareholders actually own. The ratio is also sensitive to buybacks and accumulated losses. Companies that repurchase large amounts of stock can report very low or even negative common equity despite strong businesses, which makes the ratio less informative for them.
The ratio is the reciprocal of the equity multiplier used in DuPont analysis, where return on common equity equals return on assets multiplied by total assets divided by common equity. A lower ratio magnifies both gains and losses for common shareholders. For banks, analysts often go a step further and remove goodwill and other intangibles from both sides to get the tangible common equity ratio.
A: It depends heavily on the industry. Industrial and technology companies often fund half or more of their assets with equity, while banks typically operate with common equity at around a tenth of assets or less.
A: The debt ratio measures how much of the assets is financed by liabilities. This ratio measures the portion financed by common shareholders, so preferred and noncontrolling equity fall into neither.
A: When accumulated losses or share buybacks exceed the capital a company has raised and retained, common equity turns negative. The ratio then goes below zero even though the company may still be solvent and profitable.
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