Answers the Question
How much of our assets were purchased with debt?
Calculator for Equity Multiplier
What Is the Equity Multiplier?
The equity multiplier is a measure of financial leverage. The greater the value, the more debt a company has taken on to acquire its assets.
Why Is it Important?
- All things being equal, the higher the multiplier, the riskier the investment. Remember, that debt may help firms grow, but it lenders typically want to be paid back.
Formula(s) to Calculate Equity Multiplier
- EQUITY MULTIPLIER = TOTAL ASSETS / STOCKHOLDER EQUITY
- Different methods of depreciation will lead to different asset valuations. As such, similar companies that use different accounting techniques may show vastly different multipliers.
- Different types of businesses have different norms for levels of debt. It is not proper to assume that there is a single standard for cross-sector equity multipliers.