CAIIB (ABM - Advanced Bank Management) - Proprietary ratio

 Question: Proprietary ratio is calculated by
 
Explanation:
 

1. Proprietary ratio (also known as Equity Ratio or Net worth to total assets or shareholder equity to total equity).
2. Establishes relationship between proprietor's funds to total resources of the unit. Where proprietor's funds refer to Equity share capital and Reserves, surpluses and Total resources refer to total assets.
3. Proprietary ratio = Proprietor's funds/Total assets
4. This relationship highlights the fact as to what is the proportion of Proprietors and outsiders in financing the total business.

Solved Example:

 

In a business total assets amount of Rs 4,00,000 and Proprietors equity is Rs: 3,00,000 then:

Proprietary ratio = 3,00,000 / 4,00,000

                           =  0.75 times

                               or 75% meaning hereby that 25% of the funds have been supplied by the outside creditors.

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