de: Eigenkapital Formula: Assets - Liabilities
Losses and Profits decrease/increase the Equity.
Any loss reduces the Equity Capital (Amount of Equity). → should there be no or very little Liquidity, then the company will go bankrupt very quickly
Higher Equity Capital → more resilience A resilient company can endure multiple years of losses, a company with mostly liability capital cannot endure as many losses before going bankrupt
Equity Ratio
Equity compared to total Assets
Should be 1:2 (33%)
higher ratio (1:3 or even 1:9) → High Geared Company
Changes in Equity
- Equity of previous Years
-
- Profit
-
- Losses
- +/- Dividends
- +/- Capital (Issuance of Shares / Share Buyback)