Equity Multiplier

Equity multiplier

Total assets divided by total common stockholders' equity; the total assets per dollar of stockholders' equity.

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Equity Multiplier

In risk analysis, a ratio that measures a company's leverage. It is taken by dividing the company's total assets by its shareholders' equity. The result shows the proportion of the company's assets that are financed by debt. Generally, companies with higher leverage as determined by the equity multiplier are thought to be more risky because they have more liabilities and less equity. It is also called the leverage ratio. See also: Gearing ratio.

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Equity Multiplier

What Does Equity Multiplier Mean?

A measure of financial leverage calculated as Total Assets/Total Stockholders' Equity. Like all debt management ratios, the equity multiplier is a way of examining how a company uses debt to finance its assets. Also known as the financial leverage ratio or leverage ratio.

Investopedia explains Equity Multiplier

In other words, this ratio shows a company's total assets per dollar of stockholders' equity. A higher equity multiplier indicates higher financial leverage, which means the company is relying more on debt to finance its assets.

Related Terms:
• Asset
• Current Ratio
• Debt/Equity Ratio
• Leverage
• Shareholders' Equity