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Profit Multiplier Calculator

Calculate Profit Multiplier



Formula

To calculate the profit multiplier:

PM=NIE

Where:

What is a Profit Multiplier?

The profit multiplier is a financial ratio that measures the return on equity. It indicates how many dollars of profit a company generates with each dollar of shareholders' equity. A higher profit multiplier suggests a more efficient use of equity in generating profit.

Examples

Example 1: If the net income is $50,000 and the equity is $200,000:

Using the formula:

PM=50,000200,000=0.25

So, the profit multiplier is 0.25.

Example 2: If the net income is $120,000 and the equity is $400,000:

Using the formula:

PM=120,000400,000=0.30

So, the profit multiplier is 0.30.