What is Creditors’ Equity?

Creditors' equity is the proportion of assets that an organization is financing with credit extended to it by creditors . It is essentially the total amount of liabilities on the balance sheet , though a case can be made that wages payable is actually employees' equity, since this is essentially credit extended to the firm by employees . A high ratio of liabilities to assets implies that a business is maintaining a low equity level, thereby using creditors to enhance its return on equity . An ancillary indicator of a high level of creditors’ equity is when a business routinely pays its suppliers on unusually long payment terms.