Whats a good equity multiplier?

A higher asset to equity ratio shows that the current shareholders own fewer assets that the current creditors. A lower multiplier is considered more favorable because such companies are less dependent on debt financing and do not need to use additional cash flows to service debts like highly leveraged firms do.Click to see full answer. People also ask, what is a good equity multiplier? Calculating a Company’s Equity Multiplier A lower equity multiplier indicates a company has lower financial leverage. In general, it is better to have a low equity multiplier because that means a company is not incurring excessive debt to finance its assets.Also, why is Equity Multiplier important? Understanding the Equity Multiplier Essentially, this ratio is a risk indicator in that it shows how leveraged the company is to investors and creditors. A higher equity multiplier number indicates that the debt portion of total assets is increasing which translates to more financial leverage for the company. Additionally, what is the formula for equity multiplier? Equity Multiplier. The formula for equity multiplier is total assets divided by stockholder’s equity. Equity multiplier is a financial leverage ratio that evaluates a company’s use of debt to purchase assets.What does a high equity ratio mean?A higher equity ratio or a higher contribution of shareholders to the capital indicates a company’s better long-term solvency position. A low equity ratio, on the contrary, includes higher risk to the creditors.