Financial Leverage Multiplier in Du Pont Analysis

Explanation: In Du Pont Analysis, the Financial Leverage multiplier measures how much of a company’s assets are financed by liabilities (including both current and non-current liabilities) compared to equity. It is calculated by dividing total assets by total equity. A higher multiplier indicates a greater reliance on liabilities to finance assets, while a lower multiplier suggests a stronger equity position relative to liabilities.

Example: TCS has a Financial Leverage multiplier of 1.55 in the Du Pont breakdown. This means that for every rupee of equity, TCS has 1.55 rupees of assets, which are financed through liabilities. Even though TCS may not have traditional debt, its assets are still funded by other current and non-current liabilities. Understanding this ratio helps assess TCS’s financial leverage and the composition of its capital structure, providing insights into its risk profile and financial health.

You can view the Financial Leverage value for any company on Radar under DuPont Ananlysis in the Ratios section.