If company A has a higher equity ratio than company B, then
A) company A has a lower equity multiplier than company B.
B) company B has a lower equity multiplier than company A.
C) company B has lower financial leverage than company A.
D) None of the above.

Question

Quizplus · Accepted Answer

The equity ratio is total equity divided by total assets. A higher equity ratio means that company A has a larger proportion of equity financing compared to its assets than company B. The equity multiplier is calculated as total assets divided by total equity. If company A has a higher equity ratio, it means that the denominator in the equity multiplier formula is higher, resulting in a lower equity multiplier compared to company B.

If Company a Has a Higher Equity Ratio Than Company