Which portion of the DuPont identity measures the financial leverage employed by a firm?
A)Both the profit margin and the equity multiplier
B)Equity multiplier
C)Total asset turnover
D)Both the capital intensity ratio and the total asset turnover
E)Both the capital intensity ratio and the debt-equity ratio

Question

Quizplus · Accepted Answer

The equity multiplier measures the company's financial leverage. It is calculated as total assets divided by total equity. Therefore, it reflects the degree to which a firm relies on debt financing.

Which Portion of the DuPont Identity Measures the Financial Leverage