Question

Given the equity multiplier is 4.55. The debt-asset ratio of a firm, according to DuPont analysis will be _________.

• A. 0.22
• B. 0.78
• C. 1.28
• D. 1.56
• E. Data insufficient

Answer 1

The correct option is B 0.78

The equity multiplier is a financial leverage ratio that measures the amount of a firm's assets that are financed by its shareholders by comparing total assets with total shareholder's equity.

Equity multiplier = Total assets / Total equity = 4.55

Equity / Assets = 1 / 4.55 = 0.2197

Hence, Debt / Assets = 1 - 0.2197 = 0.7802.