Enter the net income and equity into the calculator to determine the profit multiplier. This calculator helps in understanding the return on equity for a business or investment.
Profit Multiplier Formula
The following formula is used to calculate the profit multiplier.
PM = NI / E
Variables:
- PM is the profit multiplier
- NI is the net income ($)
- E is the equity ($)
To calculate the profit multiplier, divide the net income by 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.
How to Calculate Profit Multiplier?
The following steps outline how to calculate the Profit Multiplier.
- First, determine the net income (NI) in dollars.
- Next, determine the equity (E) in dollars.
- Next, gather the formula from above = PM = NI / E.
- Finally, calculate the Profit Multiplier (PM).
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Net income (NI) = $50,000
Equity (E) = $200,000
