Equity Ratio is:
ATotal Debt / Equity
BShareholders' Equity / Net Assets
CNet Profit / Equity Capital
DReserves / Total Assets
Answer & Solution
Correct answer: B. Shareholders' Equity / Net Assets
1. Equity Ratio = Shareholders' Equity / Net Assets (capital employed).
2. Shareholders' Equity = Equity Share Capital + Reserves & Surplus.
3. Higher Equity Ratio = lower lender risk.
_Source: ICAI BoS CA Inter Paper 6A, Ch 3 "Financial Analysis and Planning — Ratio Analysis", §3.2.1(a)_