The equity ratio measures the proportion of equity to total capital, expressed as a percentage. It is a key indicator of a company’s financial stability and risk capacity, as a higher ratio signifies a solid capital structure with reduced reliance on debt. Particularly in finance and credit, the equity ratio is crucial for assessing long-term solvency and insolvency risks.
Under the Standardised Credit Risk Approach (SCRA) outlined in CRR III, the equity ratio plays a pivotal role. It serves as a foundation for calculating Risk-Weighted Assets (RWA), directly influencing capital requirements.
