[PDF] EFFECT OF THE EQUITY MULTIPLIER INDICATOR IN COMPANIES

What is equity multiplier?

The equity multiplier is a financial ratio that measures how much of a company's assets are financed through stockholders' equity and is calculated by dividing total assets by shareholders' equity. In general, lower equity multipliers are better for investors, but this can vary between industries and companies with particular industries.

Why is the equity multiplier important in DuPont analysis?

The equity multiplier is an important factor in DuPont analysis, which is a method of financial assessment devised by the chemical company for its internal financial review. The DuPont model breaks the calculation of return on equity (ROE) into three ratios:

How does equity multiplier affect Roe?

Any increase in the value of the equity multiplier results in an increase in ROE. A high equity multiplier shows that the company incurs a higher level of debt in its capital structure and has a lower overall cost of capital. Thank you for reading CFI’s guide to Equity Multiplier.