So 5 million of liabilities.

You'll hear people talking in terms of 10 1 or 2 1, or something to one, but 10 3 is a fair leverage ratio.

One of the viewers pointed out not incorrectly that one definition of return on asset so this whole video's going to be on return on asset that one definition of return on asset, and if you look it up on some of the finance sites or even some finance textbooks, they'll tell you it's net income over total assets.

Well, that means the ratio of the assets to the equity is 2 1.

I owe these people that money is 700 and my equity is 300.

I'll do that in yellow.

Proportion

Proportional Bias

Ratio

So the total assets were 5 billion in assets.

In this case, the ratio of our assets to equity so we have assets to equity leverage, is what people say in this case, it's 1,000 to 300 or what is it?

And this is really about as difficult as I guess we could say basic ratio problems get.

Golden ratio

Keep ratio

Keep Ratio

We have a minus fifteen apples.

So a lot of times people when they talk about leverage, you might hear someone say, 2 1 leverage.

I actually haven't used white.

I'll do apples in this reddish color.

There are four boys, four boys and seven girls. That's what this ratio tells us.

So how can you do this?

Image to text ratio

Maybe that's 2 and that's 1 like that.

So the ratio is 10 to 6, which is the same thing as 5 to 3.

That's what I start off with.

And if you are an investor, you're probably going to want to do the last of the three.

Will keep the ratio constant

Or I could also write it as five eight, just like that.

But just think of it this way, leverage is the ratio of how much assets you have over how much equity you have.

In case you don't know but I assume most of you do, planes don't crash very often.

OK, that's interesting.

So the ratio of a to o is equal to what?

Well let's go back to the farm example.

You move these two triangles over here together into a single triangle. It looks like this.

But there was an underlying support.

The bank is going to be able to fulfill its promise.

That assets, A for assets, is equal to

But I'll get back to that in a second.

I take away fifteen when I take away fifteen apples.

So let's think about it this way.

But we'll do a whole playlist on that.

But our total assets, or the market's perception of the total assets of the company, are essentially what it's willing to pay for the equity plus the liabilities, so the market is saying that Ben's assets, the assets in that company are worth 220,000.

And we have these 4 billion of CDOs.

And, consistent from what we expect from stellar evolution laws.

I repeated this experiment 1000 times and that means