Leverage magnifies returns on equity in good times and losses in bad times. The equity multiplier is one of the three parts of the DuPont ROE breakdown.
How to use the Financial Leverage Ratio Calculator
- Total assets
- Total debt
- Shareholders’ equity
- EBIT
- Interest expense
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter total assets, total debt, shareholders’ equity, EBIT and interest expense.
Tips
- Use consistent periods (a year or a quarter) for flow figures and period-end values for balances.
- Average opening and closing balances when a ratio mixes a flow with a stock.
- Benchmark against competitors in the same industry.
- Read the ratio together with others – profitability, liquidity and efficiency tell different stories.
Common mistakes to avoid
- Using sales instead of cost of goods sold for inventory ratios.
- Mixing gross, operating and net profit.
- Ignoring one-off items that distort a single year.
Inputs explained
| Field | What to enter |
|---|---|
| Total assets | Amount in your currency |
| Total debt | Amount in your currency |
| Shareholders’ equity | Amount in your currency |
| EBIT | Amount in your currency |
| Interest expense | Amount in your currency |
What each result means
- Equity multiplier = [Total assets]÷[Shareholders’ equity]
- Debt-to-equity = [Total debt]÷[Shareholders’ equity]
- Debt-to-assets = [Total debt]÷[Total assets]
- Degree of financial leverage = [EBIT]÷([EBIT] – [Interest expense])
Example values
How the main result changes when Total assets changes and everything else stays at the example values above:
| Total assets | Equity multiplier |
|---|---|
| 1,000,000 | 1.11 |
| 1,500,000 | 1.67 |
| 2,000,000 | 2.22 |
| 2,500,000 | 2.78 |
| 3,000,000 | 3.33 |
| 4,000,000 | 4.44 |
Formula
Equity multiplier = total assets ÷ shareholders' equityDebt-to-equity = total debt ÷ equityDegree of financial leverage = EBIT ÷ (EBIT − interest)Worked example
Inputs — Total assets: $2,000,000; Total debt: $800,000; Shareholders' equity: $900,000; EBIT: $250,000; Interest expense: $50,000.
Results — Equity multiplier = 2.22; Debt-to-equity = 0.89; Debt-to-assets = 0.4; Degree of financial leverage = 1.25.
Frequently asked questions
What is a good financial leverage ratio?
It varies by industry; an equity multiplier of 2 or less is often considered conservative.
What does a high equity multiplier mean?
More assets are financed with debt.
What is the degree of financial leverage?
The % change in EPS for a 1% change in EBIT.
What formula does the Financial Leverage Ratio Calculator use?
Equity multiplier = total assets ÷ shareholders' equity.