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Measures how well a company uses equity from its stockholders to generate sales.[sc:kit02 ]
Sales to Equity Formula
Explanation of Sales to Equity
The Sales to Equity ratio measures how much equity has been retained within the company to produce a level of Net Sales. If measured over time, this ratio can help reveal how well the equity is being used to generate sales.
Importance of Sales to Equity
An increasing amount of equity is generally a positive sign, showing the company is more able to make use of its Total Stockholders Equity to generate sales. Some caution should be used, as companies can intentionally reduce the amount of equity in the company by buying back company stock or distributing dividends.
This can make this ratio appear more favorable and the company appear more efficient, but may instead starve themselves of essential equity to help build future sales.