What is the 'Equity Multiplier'
The equity multiplier is calculated by dividing a company's total asset value by total net equity, and it measures financial leverage. Companies finance their operations with equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is attributed to debt. The equity multiplier is a variation of the debt ratio, and its definition of debt financing includes all liabilities.
!breakCalculation of the equity multiplier is relatively simple and straightforward. Consider the balance sheet of Apple Inc. as of March 2016. The company's total assets were $305 billion, and the book value of shareholder equity was $130 billion. The company's equity multiplier was therefore 2.34. Verizon Communications Inc. operates a very different business model with more financial leverage. The company's total assets were $245 billion as of March 2016, with $19 billion of shareholder equity. The equity multiplier was 13.1, based on these values.
Leverage Analysis
Verizon's much lower proportionate shareholder equity value indicates that the business relies more heavily on financing from debt and other liabilities. The company's telecommunications business model is reminiscent of utilities firms, which have stable, predictable cash flows and typically carry high debt levels. Verizon's closest peer, AT&T Inc. also has one of the highest equity multipliers among the largest companies traded on U.S. exchanges, though it is much lower at 3.3 than Verizon's ratio of 13.1.
Apple is an established, mature business that can comfortably service debt, and it has issued notes to gain access to capital at relatively attractive costs. However, the company is more susceptible to changing economic conditions or evolving industry standards than utilities or large telecommunications firms. As a result, Apple has less financial leverage. These differences in business models mean that higher financial leverage does not necessarily indicate superior financial health.
DuPont Analysis
The equity multiplier is an important factor in DuPont analysis, which is a method of financial assessment devised by the DuPont Corporation for the purpose of internal review. The DuPont model breaks return on equity (ROE) into its constituent pieces, which are popular financial ratios and metrics. Net profit margin, asset turnover and the equity multiplier are combined to calculate ROE, which allows analysts to consider the relative of each impact separately. If ROE changes over time or diverges from normal levels for the peer group, DuPont analysis indicates how much of this is attributable to financial leverage. If the equity multiplier fluctuates, it can significantly impact ROE. Higher financial leverage drives ROE upward, all other factors remaining equal.
BREAKING DOWN 'Equity Multiplier'

DuPont Analysis
A method of performance measurement that was started by the DuPont ... 
Leverage Ratio
Any ratio used to calculate the financial leverage of a company ... 
DuPont Identity
An expression that breaks return on equity (ROE) down into three ... 
Return On Equity  ROE
The amount of net income returned as a percentage of shareholders ... 
Market Value Of Equity
The total dollar market value of all of a company's outstanding ... 
Earnings Multiplier
An adjustment made to a company's P/E ratio that takes into account ...

Investing
Equity Multiplier
The equity multiplier is a straightforward ratio used to measure a company’s financial leverage. The ratio is calculated by dividing total assets by total equity. 
Investing
Analyzing Verizon's Return on Equity (ROE) (VZ)
Learn about Verizon's return on equity and find out how ROE is influenced by net profit margin, asset turnover ratio and financial leverage. 
Investing
Analyzing Boeing’s Return on Equity (ROE) (BA)
Learn about Boeing's return on equity and find out how the company's ROE compares to its own historical performance and aerospace industry peers. 
Managing Wealth
Understanding the DuPont Analysis
DuPont analysis measures assets at their gross book value, rather than at net book value, in order to produce a higher return on equity (ROE). 
Investing
Decoding DuPont Analysis
Get a deeper understanding of ROE with these threestep and fivestep calculations. 
Investing
Analyzing AT&T's Return on Equity (ROE) (T)
Learn about AT&T's return on equity. Find out how its recent ROE compares to historical results and those of peers in the telecommunications industry. 
Investing
Analyzing Alibaba Group's Return on Equity (ROE) (BABA)
Learn about Alibaba's return on equity, and find out how net profit margin, the asset turnover ratio and financial leverage impact ROE relative to peers. 
Investing
Analyzing Apple's Return on Equity (AAPL)
Learn about Apple's return on equity (ROE) in fiscal 2015, and find out how net profit margin, financial leverage and asset turnover impact ROE relative to its peers. 
Investing
Analyzing Baidu's Return on Equity (ROE) (BIDU)
Find out how Baidu's return on equity (ROE) compares to industry peers and historical results. See how DuPont analysis treats net margin, asset turnover and leverage. 
Investing
Analyzing American Airlines’ Return on Equity (AAL)
Learn about American Airlines' return on equity (ROE). Find out why American's ROE is now positive and how financial leverage impacts ROE relative to peers.

What is the equity multiplier's affect on Return on Equity (ROE)?
Learn about how to calculate the equity multiplier in the threestep DuPont analysis method, and see what impact a higher ... Read Answer >> 
How does DuPont Analysis measure financial leverage?
Learn about how DuPont analysis measures financial leverage using the equity multiplier, and see when the equity multiplier ... Read Answer >> 
How does the equity multiplier change in relation to asset turnover?
Find out about the relationship between the equity multiplier and the asset turnover ratio and how both are used in the DuPont ... Read Answer >> 
How can I use the equity multiplier to determine if a stock is a good investment?
Find out how investors use the equity multiplier ratio in fundamental analysis to determine whether a given stock is a solid ... Read Answer >> 
How do companies use the equity multiplier to determine a financing strategy?
Find out how the equity multiplier reflects a company's degree of financial leverage and how businesses use this ratio when ... Read Answer >> 
Which is better: A high or low equity multiplier?
Learn about the equity multiplier, how it is calculated, what it measures and why a low equity multiplier is preferred to ... Read Answer >>