Question

Markus Company’s common stock sold for $1.50 per share at the end of this year. The company paid a common stock dividend of $0.39 per share this year. It also provided the following data excerpts from this year’s financial statements: Ending Balance Beginning Balance Cash $ 24,500 $ 40,800 Accounts receivable $ 42,000 $ 38,800 Inventory $ 42,400 $ 42,000 Current assets $ 108,900 $ 121,600 Total assets $ 302,000 $ 242,800 Current liabilities $ 46,500 $ 31,500 Total liabilities $ 92,000 $ 82,800 Common stock, $1 par value $ 107,000 $ 107,000 Total stockholders’ equity $ 210,000 $ 160,000 Total liabilities and stockholders’ equity $ 302,000 $ 242,800 This Year Sales (all on account) $ 480,000 Cost of goods sold $ 278,400 Gross margin $ 201,600 Net operating income $ 32,500 Interest expense $ 2,000 Net income $ 21,350

What is the equity multiplier?

Answer 1

Equity Multiplier is calculated by dividing a company's total asset value by total stockholders equity.
Companies finance their operations with equity or debt , so a high equity multiplier indicates that larger
portion of asset financing is done by using debt.
Total assets (Ending balance) = $302000
Total stockholders equity (Ending balance) = $210000
Equity Multiplier = $302000 / $210000 = 1.44