Business, Legal & Accounting Glossary
Total assets divided by common stockholder’s equity. This is a measure of leverage. The higher the ratio is, the more the company is relying on debt to finance its asset base.
Equity Multiplier is a ratio that indicates a company’s ability to use its debt for financing its assets. It is also referred to as the Leverage Ratio and the Financial Leverage Ratio.
The Equity Multiplier ratio is calculated as total assets divided by the common stockholder’s equity.
A company’s assets equal the sum of debt and equity. The ratio consists of the equity portion of the assets of a company.
The Equity Multiplier formula calculates a company’s total assets per dollar of stockholders’ equity. It shows the extent that the financial leverage is used by a company to finance its assets.
There are three methods to analyze a company using the Equity Multiplier (financial leverage) ratio:
The equity multiplier was really easy to use once you got the hang of it because it just used simple division in its processes.
Unfortunately, after calculating their equity multiplier they realized they had too much debt and consequently had less leverage for future borrowing.
John’s going to be out of a job because Caterpillar has a very low equity multiplier, nobody is needing parts or service, so Caterpillar doesn’t need John.
debt ratio
payout ratio
DuPont identity
current ratio
common stock ratio
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This glossary post was last updated: 30th October, 2021 | 0 Views.