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Why we prefer to let the fixed asset covered by equity
The numerator in the above formula is the book value of fixed assets (fixed assets less depreciation) and the denominator is the stockholders’ equity that consists of common stock, preferred stock, paid in capital and retained earnings. Information about fixed assets and stockholders’ equity is available from balance sheet.
on FS analysis we prefer FA to be covered by equity as this give the company stronger financial position and it can continue operation without relying on external finance
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