Reciprocal Equity Multiplier
factor.formula
Equity-to-Asset Ratio:
This formula calculates the inverse of the equity multiplier, which is the ratio of shareholders' equity to total assets.
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Total shareholders' equity at the end of the most recent reporting period, consisting of equity attributable to the parent company's owners and minority interests, represents the net worth of the company's owners in the business.
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Total assets, including current and noncurrent assets, at the end of the most recent reporting period represent all economic resources controlled by the company.
factor.explanation
The equity-to-asset ratio is an important indicator to measure a company's financial structure. It reflects the proportion of a company's own funds in its total assets. A higher equity-to-asset ratio usually indicates that the company's financial structure is sound and less dependent on debt financing, but it may also mean that the company has not fully utilized financial leverage to improve profitability. On the contrary, a lower equity-to-asset ratio indicates that the company relies more on debt financing and may face higher financial risks. When making investment decisions, this ratio and other financial indicators should be considered comprehensively to judge the company's financial health and risk level.