As explained by Investopedia, the equity multiplier shows a company’s total assets per dollar of stockholders’ equity. The higher the equity multiplier, the higher is the financial leverage, which indicates that the company relies more on debt to finance its assets. Calculating Equity Multiplier ...
while the other half with equity. The equity multiplier is used in DuPont analysis, a method of financial assessment devised by the chemical company for its internal financial review.The DuPont modelbreaks the calculation ofreturn on equity (ROE)into three ratios:1 ...
Financial leverage — measured by the equity multiplier The three-part DuPont analysis to calculate ROE is profit margin multiplied by asset turnover multiplied by the equity multiplier. The first part of the formula (profit margin times asset turnover) can be simplifie...
Assume that there are two companies with identical ROEs and net income but different retention ratios. This means they will each have a different sustainable growth rate (SGR). The SGR is the rate a company can grow without having to borrow money to finance that growth. The formula for calcu...