Final answer:
The equity ratio when the debt-to-equity ratio is 0.4286 is approximately 0.70. This is calculated using the formula Equity Ratio = 1 / (1 + Debt-to-Equity Ratio).
Step-by-step explanation:
If the debt-to-equity ratio is 0.4286, to find the equity ratio, we need to understand the relationship between the two. The debt-to-equity ratio is calculated by dividing a company's total liabilities by its shareholder equity. Conversely, the equity ratio, which measures the proportion of a company's assets that are financed by shareholder's equity, is calculated by dividing the total equity by the total assets.
The formula for the equity ratio is:
Equity Ratio = Total Equity / Total Assets
Since debt + equity equals total assets (assuming there are no other forms of financing), we can derive the equity ratio by rearranging the debt-to-equity ratio formula:
To express it as a formula based on the debt-to-equity ratio, we can use:
Equity Ratio = 1 / (1 + Debt-to-Equity Ratio)
Substituting the given debt-to-equity ratio value into this formula gives:
Equity Ratio = 1 / (1 + 0.4286) = 1 / 1.4286 ≈ 0.6997
Therefore, the equity ratio when the debt-to-equity ratio is 0.4286 is approximately 0.70, after rounding to two decimal places.