The first set consisted of: (1) ROE (Return on equity), (2) ROA (Return on assets), (3) ROS (Return on sales), (4) total asset turnover and (5) equity multiplier
. The second set contained a book value per share (BVPS) for the banking and insurance sectors and price earnings ratio (P/E ) for all other sectors.
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
. Doing so would make gross income and total assets cancel out in the formulas, leaving just net income over equity.
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 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.
Since profit margin, equity multiplier
, and firm size are likely factors that would influence the market's assessment of firm value, these variables were included in the regression equation.
Currently credit guarantee funds reach an equity multiplier
(the ratio of active guarantees to the capital held) of 100%.
There is a financial ratio called equity multiplier
that is fairly simple to compute.