COST ACCOUNTING
PERFORMANCE MEASUREMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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equity divided by total assets.
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assets minus total equity, divided by total assets.
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assets divided by total equity.
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assets plus total equity, divided by total debt.
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Detailed explanation-1: -The equity multiplier is calculated by dividing a company’s total asset value by the total equity held in the company’s stock. A high equity multiplier indicates that a company is using a high amount of debt to finance its assets. A low equity multiplier means that the company has less reliance on debt.
Detailed explanation-2: -Equity Multiplier = Average Total Assets ÷ Average Shareholders’ Equity.
Detailed explanation-3: -The Equity-To-Asset ratio specifically measures the amount of equity the business or farm has when compared to the total assets owned by the business or farm. To determine the Equity-To-Asset ratio you divide the Net Worth by the Total Assets. This ratio is measured as a percentage.
Detailed explanation-4: -Financial Leverage (Equity Multiplier) is the ratio of total assets to total equity. Financial leverage exists because of the presence of fixed financing costs – primarily interest on the firm’s debt. If the company uses more debt than equity, the higher will be the financial leverage ratio.