Banking Term: Equity Multiplier
- It measures financial leverage and represents both a profit and risk management.
- It compares assets with equity and large values indicate a large amount of debt financing a comparison to equity.
- It has impact on return on assets.
- A critical scrutiny of EM helps to evaluate whether capital support is proportionate to the risks assumed in the balance sheet.
Investment Multiplier = (Total Assets )/(Total Equity)
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