Equity Multiplier
Calculate the equity multiplier, a solvency ratio that measures the degree to which a company uses borrowed money (debt) to finance its operations and growth.
The equity multiplier helps assess the financial leverage of a company by indicating how much of its assets are financed by equity versus debt. A higher equity multiplier suggests that the company relies more on debt financing, which can amplify returns but also increases financial risk. Conversely, a lower equity multiplier indicates a larger portion of assets is financed by equity, potentially lowering financial risk.
The formula is as follows:
\[\text{Equity Multiplier} = \text{Average Total Assets} / \text{Average Total Equity}\]Also known as: financial leverage multiplier.
Equity Multiplier in Python
get_equity_multiplier is part of the Ratios module of the open-source Finance Toolkit. Install it with:
pip install financetoolkit -U
Then call get_equity_multiplier as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(["AAPL", "TSLA"], api_key="FINANCIAL_MODELING_PREP_KEY")
equity_multipliers = toolkit.ratios.get_equity_multiplier()
Which returns:
| 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| AAPL | 5.255 | 6.1862 | 6.252 | 6.0251 | 5.5418 |
| TSLA | 2.0679 | 1.8646 | 1.7255 | 1.6657 | 1.6601 |
Parameters
get_equity_multiplier accepts the following parameters:
- rounding (int, optional): The number of decimals to round the results to. Defaults to 4.
- growth (bool, optional): Whether to calculate the growth of the ratios. Defaults to False.
- lag (int | str, optional): The lag to use for the growth calculation. Defaults to 1.
- standardize (bool, optional): Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False.
- trailing (int): Defines whether to select a trailing period. E.g. when selecting 4 with quarterly data, the TTM is calculated.