when a company s shareholder equity ratio approaches 100 it means that the company has financed almost all of its assets with equity capital instead of taking on debt equity capital however has some drawbacks in comparison with debt financing it tends to be more expensive than debt and it requires some dilution of ownership and giving voting rights to new shareholders 
the shareholder equity ratio is most meaningful in comparison with the company s peers or competitors in the same sector each industry has its own standard or normal level of shareholders equity to assets example of the shareholder equity ratiosay that you re considering investing in abc widgets inc and want to understand its financial strength and overall debt situation you start by calculating its shareholder equity ratio a year end number is arrived at by using return on equity roe calculation you can use also get a snapshot idea of profitability using return on average equity roae from the company s balance sheet you see that it has total assets of 3 0 million total liabilities of 750 000 and total shareholders equity of 2 25 million calculate the ratio as follows this tells you that abc widgets has financed 75 of its assets with shareholder equity meaning that only 25 is funded by debt in other words if abc widgets liquidated all of its assets to pay off its debt the shareholders would retain 75 of the company s financial resources 