Proprietary Ratio Calculator
Calculate the proprietary ratio — shareholders' funds as a share of total assets — to see how much of the business is financed by owners versus creditors.
Frequently Asked Questions
What is the proprietary ratio formula?
Proprietary Ratio = Shareholders' Funds (Proprietors' Funds) ÷ Total Assets, where Shareholders' Funds = Equity Share Capital + Reserves & Surplus. It shows what fraction of a company's total assets are financed by the owners themselves, as opposed to creditors and lenders.
What is a good proprietary ratio?
A ratio of 0.5 (50%) or higher is generally seen as financially sound, meaning owners fund at least half of total assets and the business isn't overly dependent on borrowed capital. Lower ratios indicate heavier reliance on debt and other liabilities, which raises financial risk, especially if earnings become volatile.
Why do lenders and creditors care about the proprietary ratio?
A higher proprietary ratio means owners have more of their own capital at risk and a larger equity cushion absorbing losses before creditors are affected — making the company a safer credit risk. Lenders often view a strong proprietary ratio favorably when assessing how much additional debt a company can safely take on.
How is the proprietary ratio related to the debt-equity ratio?
They describe the same capital structure from two different angles. Proprietary Ratio = Equity ÷ Total Assets, while Debt-Equity Ratio = Debt ÷ Equity. A high proprietary ratio corresponds to a low debt-equity ratio, and vice versa — reviewing both together gives a complete picture of how a business balances owner versus borrowed capital.
What does a low proprietary ratio indicate?
A low proprietary ratio means most of the company's assets are financed by liabilities — debt, payables, and other obligations — rather than owners' capital. This increases financial risk, since the business has less of an equity buffer to absorb a downturn, and lenders may see it as more highly leveraged and riskier to extend further credit to.
How can a business improve its proprietary ratio?
Retain and reinvest profits to grow reserves rather than distributing them entirely as dividends, raise new equity capital instead of debt, or pay down liabilities using available cash flow — each of these increases the equity portion of total assets relative to liabilities.