Leverage Ratio

(redirected from Equity Multipliers)

Leverage Ratio

In risk analysis, any ratio that measures a company's leverage. One example of a gearing ratio is the long-term debt/capitalization ratio, which is calculated by taking the company's long-term debt and dividing it by its long-term debt added to its preferred and common stock. Another example is a simple debt-to-equity ratio, which is calculated by dividing total debt by total equity. Generally, companies with higher leverage as determined by a leverage ratio are thought to be more risky because they have more liabilities and less equity. A leverage ratio is also called a gearing ratio or an equity multiplier.
References in periodicals archive ?
Furthermore, banks with rapid asset growth often experience decreases in their capital ratios and increases in their equity multipliers.
Notwithstanding their higher ROAs, the comparatively lower equity multipliers of rural institutions drove down their returns to equity relative to urban banks.
2] The urban banks also tend to be more leveraged, as indicated by their higher equity multiplier (the ratio of assets to equity capital).