H3A: Equity Multiplier
(EM) influences Returns on Equity (ROE).
We can instead just multiply our asset turnover to our net income margin to our equity multiplier
Figure 5 shows that the equity multiplier
shows a high convergence among all accounting standards.
To measure homeowner exposure to changes in house values, we use data from the Financial Accounts of the United States and the Survey of Consumer Finances to create a home equity multiplier
and show how the size of the multiplier depends on total mortgage debt in the economy.
The basis for the analysis has been the decomposition of the rates of return, in which as the starting point there has been adopted the equation of Du Pont model, in which the return on equity (ROE) is recognised as the product of the return on assets (ROA) and equity multiplier
(MK) or, more broadly, in the form of the product of the return on sales (ROS), the total asset turnover (ROT) and the equity multiplier
It can be more completely expressed as return on assets (ROA) relative to an equity multiplier
or, more simply, the degree of financial leverage at a bank.
The extended DuPont equation is a method of calculating a firm's return on equity (ROE) by utilizing the profit margin (PM), total asset turnover (TATO) and equity multiplier
The principal key performance indicator for shareholder value is ROE (return on equity), which has two drivers, ROA (return on assets), and the equity multiplier
(reciprocal of capital/assets ratio) or leverage factor.
We tested the first hypothesis by examining the return on assets (ROA) and return on equity (ROE), profit margin (MARGIN) and equity multiplier
(MULTIPLIER) of firms over a 14 year period, 1982-1995.
The equity multiplier
has been bumpy over the last 11 quarters, as equity had been increasing faster than the increase in total assets.
There is a financial ratio called equity multiplier
that is fairly simple to compute.
2] The urban banks also tend to be more leveraged, as indicated by their higher equity multiplier
(the ratio of assets to equity capital).