What is Equity Multiplier?
The equity multiplier is a leverage ratio calculated as total assets divided by total shareholders’ equity. It shows how much of a company’s assets are financed by equity versus debt. A higher multiplier means more leverage and higher financial risk.
How It Works
- Pull total assets and total equity from the balance sheet.
- Divide assets by equity.
- Use it as a component of the DuPont ROE decomposition.
- Track it over time to monitor leverage trends.
Saudi Context
Saudi banks naturally show high equity multipliers (often 8 to 12x) because of their deposit base, while non-financial corporates typically run 1.5 to 3x.
Example
A company with SAR 200 million in assets and SAR 80 million in equity has an equity multiplier of 2.5, meaning each riyal of equity supports SAR 2.50 of assets.