The Equity multiplier measures the portion of a company's total assets that are financed by shareholder's equity. It is calculated by dividing total assets by total shareholder's equity.A lower ratio indicates that a larger portion of asset financing is done through equity, i.e., the company takes on less debt. Conversely, a higher ratio signifies more financing of assets with debt, indicating a higher financial risk since debts have to be repaid regardless of the company's performance.
Learn Equity Multiplier with interactive examples and practice exercises in our Performance Metrics module.
This interactive learning module helps you understand Equity Multiplier through hands-on practice and real-world examples.