> Where does the ratio of 10 to 1 come in
Debt to equity. $10 of debt for every dollar of equity.
Debt to equity. $10 of debt for every dollar of equity.
Equity (in accounting) is assets minus liabilities. $110mm assets, $100mm liabilities and thus $10mm equity.
You may be thinking of equities (from trading), which is another word for stock. (The link being equities represent ownership of equity, i.e. the value of a company’s assets net of liabilities.)
It seems to me that if bad things happen, you can cover for the value of your liabilities with your assets. You could waste the entire excess equity on banana monkey NFTs and still be solvent, assuming no liquidity issues.
Are the assets by definition illiquid?
so you may have started with 10M - then you borrowed (and promise to repay) 100M more. there's your 1:10 (10:100) ratio.