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Banking Term: Equity Multiplier

Apr 17, 2015 14:09 IST

    Find important banking term that is useful in upcoming banking exam.

    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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