Question

Proprietary Ratio can be calculated as ______?

Options

• Shareholders' Funds/Capital employed (or net assets)

• Capital employed (or net assets)/Shareholders Funds

• Total assets/Total liablities 

• None of the5e

Answer 1

Proprietary Ratio can be calculated as Shareholders' Funds/Capital employed (or net assets).

Explanation:

Proprietary ratio expresses relationship of proprietor's (shareholders) funds to net assets and is calculated as follows:

Proprietary Ratio = Shareholders Funds/Capital employed (or net assets)

A higher proportion of shareholders' cash used to finance assets is a favorable attribute because it gives creditors more security. This ratio can also be calculated using total assets as opposed to net assets (capital employed).