what is the equity multiplier 
the term equity multiplier refers to a risk indicator that measures the portion of a company s assets that is financed by shareholders equity rather than by debt the equity multiplier is calculated by dividing a company s total asset value by the total equity held in the company s stock a high equity multiplier indicates that a company is using a high amount of debt to finance its assets a low equity multiplier means that the company has less reliance on debt the equity multiplier is also known as the leverage ratio or financial leverage ratio and is one of three ratios used in the dupont analysis investopedia nez riazunderstanding the equity multiplierinvesting in new and existing assets is key to running a successful business companies finance the acquisition of assets by issuing equity or debt in some cases they resort to issuing a combination of both as an investor you may want to determine how much shareholders equity is being used to pay for and finance a company s assets this is where the equity multiplier comes into play as noted above the equity multiplier is a metric that reveals how much of a company s total assets are financed by shareholders equity essentially this ratio is a risk indicator used by investors to determine a company s position when it comes to leverage a company s equity multiplier is only high or low when compared to historical standards the averages for the industry or the company s peers because their assets are generally financed by debt companies with high equity multipliers may be at risk of default formula for the equity multiplierequity multiplier total assetstotal shareholders equitywhere total assets both current and long term assetstotal shareholders equity total assets total liabilities begin aligned text equity multiplier frac text total assets text total shareholders equity textbf where text total assets text both current and long term assets text total shareholders equity text total assets text total liabilities end aligned equity multiplier total shareholders equitytotal assets where total assets both current and long term assetstotal shareholders equity total assets total liabilities interpreting the equity multiplieran equity multiplier of two 2 means that half the company s assets are financed with debt while the other half is financed with equity the equity multiplier is an important factor in dupont analysis which is a method of financial assessment devised by the chemical company for its internal financial review the dupont model breaks the calculation of return on equity roe into three ratios if roe changes over time or diverges from normal levels for the peer group the dupont analysis can indicate how much of this is attributable to the use of financial leverage if the equity multiplier fluctuates it can significantly affect roe higher financial leverage such as a higher equity multiple drives roe upward as long as all other factors remain equal examples of equity multiplier analysisthe equity multiplier calculation is straightforward consider apple s aapl balance sheet at the end of the 2021 fiscal year the company s total assets were 351 billion and the book value of shareholders equity was 63 billion the company s equity multiplier was 5 57x 351 63 1now let s compare apple to verizon communications vz the company has a very different business model than apple the company s total assets were 366 6 billion for the fiscal year 2021 with 83 2 billion of shareholders equity the equity multiplier was thus 4 41x 366 6 83 2 based on these values 2apple s relatively high equity multiplier indicates that the business relies more heavily on financing from debt and other interest bearing liabilities meanwhile verizon s telecommunications business model is similar to utility companies which have stable predictable cash flows and typically carry high debt levels apple is thus more susceptible to changing economic conditions or evolving industry standards than a utility or a traditional telecommunications firm as a result apple carries more financial leverage 