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Also known as the financial leverage or leverage ratio, the equity multiplier measures financial leverage, the amount of debt a company carries to operate its business. Analysts use the ratio to measure how efficiently a company uses debt to finance its assets. The ratio is calculated by dividing total assets by shareholders equity. In essence, the ratio compares the value of assets to the value of equity. A higher equity multiplier indicates higher financial leverage, which means the company is relying more on debt to finance its assets. The equity multiplier is an important component of the DuPont return on equity analysis.
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