The Cliplink Company has an equity multiplier of 3.36? What are the debt ratio and debt to equity ratios of Cliplink?

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Quizplus · Accepted Answer

The equity multiplier is calculated as total assets divided by total equity, which is also equal to 1 + (total debt/total equity). Given an equity multiplier of 3.36, it means that for every $1 of equity, the company has $3.36 of assets. This implies a debt to equity ratio of 2.36 (since 3.36 - 1 = 2.36). The debt ratio, which is total debt divided by total assets, can be inferred from these values. If the equity multiplier is 3.36, it means that equity is 1/3.36 of assets, so debt is 2.36/3.36 of assets, which simplifies to 0.70 or 70%.

The Cliplink Company Has an Equity Multiplier of 3