Equity Multiplier or Shareholder
1
Equity Multiplier or Shareholder’s Equity= Total Asset/ Total Equity 2011 2012 2013 1.63 1.51 1.31 The equity multiplier is a measurement of a company’s financial leverage. Companies finance the purchase of assets either through equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is being done through debt. The multiplier is a variation of the debt ratio. In order to develop a better picture of a company’s financial health, investors should take into account other financial ratios and metrics, such as net profit margin or asset turnover. If it is cheaper to borrow than issue new shares, financing asset purchases through debt may be more cost-effective than a secondary issue. For URC, a decreasing trend can be seen meaning more and more assets are being funded by Equity rather than debt (higher ratio means more debt financing rather than equity and lower meanse vice versa). Lower multiplier ratios are always considered more conservative and more favorable than higher ratios because companies with lower ratios are less dependent on debt financing and don’t have high debt servicing costs. A continuous reliance on Equity can be seen from 61.32% on 2011 to 66.11% on 2012 and to now 76.38% on 2013 of a company’s assets are financed by equity.
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Transcript of Equity Multiplier or Shareholder
Equity Multiplier or Shareholders Equity= Total Asset/ Total Equity
201120122013
1.63 1.511.31
The equity multiplier is a measurement of a companys financial leverage. Companies finance the purchase of assets either through equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is being done through debt. The multiplier is a variation of the debt ratio. In order to develop a better picture of a companys financial health, investors should take into account other financial ratios and metrics, such as net profit margin or asset turnover. If it is cheaper to borrow than issue new shares, financing asset purchases through debt may be more cost-effective than a secondary issue. For URC, a decreasing trend can be seen meaning more and more assets are being funded by Equity rather than debt (higher ratio means more debt financing rather than equity and lower meanse vice versa). Lower multiplier ratios are always considered more conservative and more favorable than higher ratios because companies with lower ratios are less dependent on debt financing and dont have high debt servicing costs. A continuous reliance on Equity can be seen from 61.32% on 2011 to 66.11% on 2012 and to now 76.38% on 2013 of a companys assets are financed by equity.
