Banking Term: Equity Multiplier

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

Apr 17, 2015 14:09 IST
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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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