What is EM?
A leverage ratio showing how much of a company's assets are financed by shareholders' equity vs. debt.
Think of it like this
Like measuring how much you've leveraged your house - a multiplier of 2 means half is debt, half is equity.
Formula
Equity Multiplier = Total Assets รท Shareholders' Equity- Total Assets: Everything the company owns
- Shareholders' Equity: Net worth belonging to shareholders
Why it matters
- Part of DuPont analysis for ROE
- Higher multiplier = more leverage
- Shows financial risk level
- Affects return on equity
What's a good value?
1.0-1.5
Conservative
Low debt financing
1.5-2.0
Moderate
Balanced approach
2.0-3.0
Leveraged
Significant debt use
> 3.0
Highly Leveraged
High financial risk
Real-world example
Banks typically have equity multipliers of 10+ due to their business model.
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