Asked by Tamerea Downey on Jun 24, 2024
Verified
A decrease in the equity multiplier indicates that the firm has increased its use of debt.
Equity Multiplier
A financial ratio that measures a company's total assets financed by shareholders' equity, indicating the level of leverage used by the company.
- Apply ratio analysis to evaluate a firm's leverage and its implications for financial outcomes.
Verified Answer
AP
Anthony PreziosioJun 30, 2024
Final Answer :
False
Explanation :
A decrease in the equity multiplier means that the firm has decreased its use of debt and increased its reliance on equity. The equity multiplier is calculated as total assets divided by shareholder's equity. Therefore, decreasing this ratio means that the firm has a larger proportion of equity in its capital structure.
Learning Objectives
- Apply ratio analysis to evaluate a firm's leverage and its implications for financial outcomes.
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