# 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:

- Horizontal and Vertical Analysis
- Ratios Analysis
- Horizontal Analysis or Trend Analysis
- Trend Percentage
- Vertical Analysis
- Accounting Ratios Definition, Advantages, Classification and Limitations:
- Gross profit ratio
- Net profit ratio
- Operating ratio
- Expense ratio
- Return on shareholders investment or net worth
- Return on equity capital
- Return on capital employed (ROCE) Ratio
- Dividend yield ratio
- Dividend payout ratio
- Earnings Per Share (EPS) Ratio
- Price earning ratio
- Current ratio
- Liquid/Acid test/Quick ratio
- Inventory/Stock turnover ratio
- Debtors/Receivables turnover ratio
- Average collection period
- Creditors/Payable turnover ratio
- Working capital turnover ratio
- Fixed assets turnover ratio
- Over and under trading
- Debt-to-equity ratio
- Proprietary or Equity ratio
- Ratio of fixed assets to shareholders funds
- Ratio of current assets to shareholders funds
- Interest coverage ratio
- Capital gearing ratio
- Over and under capitalization
- Financial-Accounting- Ratios Formulas
- Limitations of Financial Statement Analysis

### Other Related Accounting Articles:

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

## Recommended Books !

Or

**Download E accounting book in MS-word format for just 20 $ - Click here to Download**

## Comments / Questions

No Comments or Questions yet be the first to comment.