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Market value of equity to total liabilities ratio definition

Description

Market value of equity to total liabilities (ME/TL) ratio compares the company’s market stock price to the total debt of that company. Data to calculate this ratio is collected from the stock market bulletin and balance sheet.

This ratio is important for the company’s owners and investors, as in some sense it shows market’s reaction to company’s financial position.

Norms and limitations

There are no general norms for this ratio.

The higher value of the ratio, the better it is for the company. It is recommended to compare this ratio to those of the companies, working within the same industry.

Formula

Market capitalization (stock price) is the total market value of all the outstanding shares, and is calculated by multiplying share price by the amount of share outstanding.

Debt (total debt, total liabilities) is calculated by adding together long-term debt with short-term debt. These two measures can be easily located on the balance sheet.