what affects the equity multiplier 
a company s equity multiplier varies if the value of its assets changes and or if the level of liabilities changes if assets increase while liabilities decrease the equity multiplier becomes smaller that s because it uses less debt and more shareholders equity to finance its assets the bottom linethe 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 in some cases a low equity multiplier could actually indicate that the company cannot find willing lenders or it could also signal that a company s growth prospects are low on the other hand a high equity multiplier is not always a sure sign of risk high leverage can be part of an effective growth strategy especially if the company is able to borrow more cheaply than its cost of equity correction jan 19 2023 an earlier version of this article stated that a company s equity multiplier grows larger if its assets increase while its liabilities decrease this was corrected to show that the reverse is true that the equity multiplier becomes smaller because it uses less debt to finance its assets 