External equities are those liabilities that specifically refer to outside liabilities.

Internal equities are those that include claims of equity share holders and preference shareholders that include share capital surplus as well as reserves. Also, compilation of long term financial ratios and debentures are to be considered. Normally in this case acceptable ratio is 2:1.

Debt-Equity Ratio = Debt / Equity

Shareholder’s Fund/Outsider’s Fund

Internal Equities/External Equities

Proprietary Ratio = Shareholder’s Fund / Total Assets

Total Tangible Assets/Shareholder’s Fund ( This Shareholder’s Fund includes reserve surplus, equity share capital, preference share capital, profit and loss account balance)

Total Assets include all assets including goodwill. However Total Tangible Assets imply Total Assets minus Profit and Loss details, Debit Balance, Preliminary Expenses and Goodwill.

Current assets to proprietor’s fund Ratio = Current Assets / proprietor’s Fund

Ratio of fixed assets to proprietor’s fund =Fixed Assets / Proprietor’s Fund


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