A high equity multiplier signifies what about debt and equity?

A high equity multiplier indicates that a firm is using a relatively high amount of debt compared to its equity. The equity multiplier is a financial ratio calculated by dividing total assets by total equity, which reflects how much of the company's assets are financed by shareholders' equity versus debt.

When the equity multiplier is high, it means that for each dollar of equity, there is a substantial amount of debt being utilized to finance the firm's assets. This situation can imply that the company is leveraging its capital structure heavily toward debt, which can amplify both risk and potential returns. A firm with a high equity multiplier is effectively indicating that it relies more on borrowing rather than equity financing to support its asset base.

In contrast, lower equity multipliers suggest either a greater reliance on equity financing or a lower amount of assets relative to equity.