Equity Multiplier (EM) is calculated by Dividing Total Assets bt the Total Equity of the Firm....

Equity Multiplier (EM) is calculated by Dividing Total Assets bt the Total Equity of the Firm.

This Ratio is called EM, Because:

		There is no Reason to call it Equity Multiplier (EM) - It just shows the Total Assets in $ are so many times the Total Amount of Equity in $ (TE) of the Firm.
		When we Multiply by the Total Asset Turnover (TATO of the Firm, we get Return on Equity (ROE)
		When we Multiply by the Profit Margin (PM) of the Firm, we get Return on Equity (ROE)
		When we Multiply by the Return on Assets (ROA) of the Firm. we get Return on Equity (ROE)
		When we Multiply by the Gross Margin (GM) of the Firm, we get Return on Equity (ROE)

Solutions

Expert Solution

When we will be multiplying the the return on Assets of the company by equity multiplier of the company then we will be getting the return on equity because return on asset has already been calculated upon the total turnover of the Asset.

All the other statements are false

Correct answer will be option ( D) When we will be multiplying the return on asset of the firm, we get return on equity.

jeff jeffy answered 2 years ago

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