5 0000 SolutionEquity multiplier Total Assets Equity or Eq

Solution

Equity multiplier = Total Assets / Equity

or, Equity Multiplier = (Total Assets / Equity) x (Net Profit / Net Profit) [ Muliply Numerator and denominator by Net Profit]

or, Equity Multiplier = (Total Assets / Net profit) x (Equity / Net profit)

or, Equity Multiplier = (1 / ROA) x (ROE) = ROE / ROA = 9% / 1% = 9 (first option)