Profit Multiplier Calculator

Formula

To calculate the profit multiplier:

\[ PM = \frac{NI}{E} \]

Where:

$PM$ is the profit multiplier
$NI$ is the net income ($)
$E$ is the equity ($)

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:

\[ PM = \frac{50{,}000}{200{,}000} = 0.25 \]

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:

\[ PM = \frac{120{,}000}{400{,}000} = 0.30 \]

So, the profit multiplier is 0.30.