Equity multiplier
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
Average total assets divided by average equity; a measure of financial leverage.
Equity multiplier in plain English
The equity multiplier tells you how much of a company's stuff (its assets) was paid for with borrowed money versus the owners' own money. You compute it as total assets div equity, so a value of 3 means the company controls $3 of assets for every $1 the owners actually put in — the other $2 came from debt. It's like buying a $300,000 house with only $100,000 of your own cash and a loan for the rest. A bigger multiplier means more borrowing, which can boost returns in good times but stings harder when things go wrong.
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