Financial leverage ratio (equity multiplier)
factor.formula
Average Total Assets:
Calculate the average value of the total assets of the enterprise during the reporting period to smooth the impact of asset changes on the factor calculation. Beginning total assets refer to the total assets at the beginning of the reporting period, and ending total assets refer to the total assets at the end of the reporting period.
Average Equity Attributable to Parent Company:
Calculate the average equity attributable to the parent company's shareholders during the reporting period to smooth the impact of equity changes on the factor calculation. The total equity attributable to the parent company's shareholders at the beginning of the reporting period refers to the equity attributable to the parent company's shareholders at the beginning of the reporting period, and the total equity attributable to the parent company's shareholders at the end of the reporting period refers to the equity attributable to the parent company's shareholders at the end of the reporting period.
Financial leverage ratio (equity multiplier):
Calculate the financial leverage ratio, which is the ratio of average total assets to average equity attributable to the parent company. This ratio reflects the proportion of a company's assets that are provided by equity, and also reflects the extent to which the company uses debt for financing. The larger the value, the higher the extent to which the company uses debt financing.
The calculation of this factor is based on the data in the company's balance sheet, and the average value is used to eliminate the interference of short-term fluctuations in the factor calculation. Specifically:
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The average value of total assets during the reporting period.
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The average value of equity attributable to shareholders of the parent company during the reporting period.
factor.explanation
The financial leverage ratio (equity multiplier) is an important indicator in the DuPont analysis method, which reflects the relationship between the company's asset structure and financing strategy. The increase in this indicator usually means that the company has assumed higher financial risks, but it also has the potential to amplify shareholder returns. When analyzing this indicator, investors should combine the industry average and the company's specific operating conditions to comprehensively evaluate its financial risks and profitability. Excessive financial leverage may make it difficult for the company to repay its debts when facing an unfavorable economic environment, while too low financial leverage may mean that the company has failed to make full use of debt financing to increase shareholder returns. Therefore, a reasonable level of financial leverage is a key element of corporate financial management.