Definition – What is the Equity Multiplier?
The equity multiplier is the ratio of total assets to stockholder’s equity.
Formula – How to calculate the Equity Multiplier
Equity Multiplier = Total Assets / Stockholder’s Equity
A company has total assets of $7,000 and stockholder equity of $1,750.
Equity Multiplier = $7,000 / $1,750 = 4
Therefore, this company has an equity multiplier of 4.000.
Sources and more resources
- Investopedia – Equity Multiplier & Which is better: A high or low equity multiplier? – Two pages that describe the equity multiplier and also discuss the ideal place for it.
- Accounting Tools – Equity Multiplier – An overview of the equity multiplier, as well as some items that may skew its interpretation.
- Finance Formulas – Equity Multipler – A quick entry on the equity multiplier.