Fixed Assets to Proprietor’s Fund Ratio:

Definition:

Fixed assets to proprietor’s fund ratio establishes the relationship between fixed assets and shareholders funds.

The purpose of this ratio is to indicate the percentage of the owner’s funds invested in fixed assets.

Formula:

Fixed Assets to Proprietors Fund = Fixed Assets / Proprietors Fund

The fixed assets are considered at their book value and the proprietor’s funds consist of the same items as internal equities in the case of debt equity ratio.

Example:

Suppose the depreciated book value of fixed assets is $ 36,000 and proprietor’s funds are 48,000 the relevant ratio would be calculated as follows:

Fixed assets to proprietor’s fund = 36,000 / 48,000

= 0.75 or 0.75 : 1

Significance:

The ratio of fixed assets to net worth indicates the extent to which shareholder’s funds are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by shareholder’s equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies that owners funds are more than fixed assets and a part of the working capital is provide by the shareholders. When the ratio is more than the 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. There is no rule of thumb to interpret this ratio by 60 to 65 percent is considered to be a satisfactory ratio in case of industrial undertakings.

You may also be interested in other articles from “financial statement analysis” chapter:

1. Horizontal and Vertical Analysis
2. Ratios Analysis
3. Horizontal Analysis or Trend Analysis
4. Trend Percentage
5. Vertical Analysis
6. Accounting Ratios Definition, Advantages, Classification and Limitations:
7. Gross profit ratio
8. Net profit ratio
9. Operating ratio
10. Expense ratio
11. Return on shareholders investment or net worth
12. Return on equity capital
13. Return on capital employed (ROCE) Ratio
14. Dividend yield ratio
15. Dividend payout ratio
16. Earnings Per Share (EPS) Ratio
17. Price earning ratio
18. Current ratio
19. Liquid/Acid test/Quick ratio
20. Inventory/Stock turnover ratio
21. Debtors/Receivables turnover ratio
22. Average collection period
23. Creditors/Payable turnover ratio
24. Working capital turnover ratio
25. Fixed assets turnover ratio
26. Over and under trading
27. Debt-to-equity ratio
28. Proprietary or Equity ratio
29. Ratio of fixed assets to shareholders funds
30. Ratio of current assets to shareholders funds
31. Interest coverage ratio
32. Capital gearing ratio
33. Over and under capitalization
34. Financial-Accounting- Ratios Formulas
35. Limitations of Financial Statement Analysis

Other Related Accounting Articles:

• Current Assets to Proprietor’s Fund Ratio
• Fixed Assets Turnover Ratio
• Dividend Yield Ratio
• Return on Equity Capital (ROEC) Ratio
• Dividend Payout Ratio
• Return on Shareholders Investment or Net Worth Ratio
• Proprietary Ratio or Equity Ratio
• Over trading and Under Trading
• Financial Accounting Ratios & Formulas
• Debt Service Ratio or Interest Coverage Ratio