Term: ASSET BACKING

A strong asset backing indicates that a company has large resources of assets. These may reside in a parent company, or they may belong to the company itself. As a private investor, you need to pay attention to what percentage of the company’s assets belong to the shareholders against what percentage belong to outsiders (like banks and other creditors). This can best be seen in the debt:equity ratio which shows how the company’s capital is split between what comes from the shareholders and what comes from outsiders. A company with a solid debt:equity ratio will have good asset backing in that its debt will only be a small part of the overall funding of the company.

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